“
”Markets in Focus
Timely analysis of market moves and sectors of opportunity
BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA1
The macroeconomic backdrop and earnings growth remain supportive of the bull market across risk assets.
Any pullback should be viewed as a potential buying opportunity once the dust settles.
Focus areas include select international equities, artificial intelligence (AI) and companies that benefit from its growth; and pullbacks in single stocks, industries, or sectors, as well as small caps.
There is no reason to get spooked by the busy week that lies ahead.
Nearly 50% of the S&P 500 Index by market capitalization will report earnings results, including five of the Magnificent Seven, and there will be policy meetings for the U.S. Federal Reserve (Fed), the European Central Bank, and the Bank of Japan. We don’t expect these central bank meetings to be a catalyst for meaningful market moves, and we continue to expect a 25-basis point interest rate cut from the Fed on Wednesday.
Earnings season is off to a strong start, with top- and bottom-line beats across a wide range of sectors including financials, information technology, and industrials.2 Profit margins also remain strong despite background worries around the consumer and the potential impact for delayed tariff impacts. A continuation of the Fed’s cutting cycle, coupled with resilient earnings, should provide additional support for risk assets.
There’s also an increased broadening as the market rallies from the October pullback, and some of the highest-momentum stocks are building a base after pulling back following parabolic runs. The percentage of stocks trading above their 20-day moving average has doubled to more than 50%, which is a healthy sign that the current all-time highs are being supported by better breadth. The Magnificent Seven have also been performing well, meaning that we need to see not only stellar results, but also very strong guidance from those companies reporting this week to sustain their recent gains.
Any pullback should be viewed as a potential buying opportunity once the dust settles. We remain optimistic and believe that the macroeconomic backdrop remains supportive for the bull market across risk assets. We continue to favor leaning into weakness to build balance across portfolios and leaning into the key mega-trends that increasingly permeate many sectors, industries, and geographies.
The Fed will be a key focus for investors this week, although we don’t expect many big surprises. We’re heading into the meeting with little economic data, but last week’s Consumer Price Index, coupled with signs of a somewhat tenuous labor market, should keep the Fed on track to cut rates by 25 basis points this week and another 25 basis points in December. Since Fed Chair Jerome Powell’s shift at the Jackson Hole Economic Symposium, there has been a very high bar to pausing the rate-cutting cycle, such as a dramatic acceleration of the labor market or a decline in the unemployment rate back to 4%.
Sequential cuts also should help reduce tensions with the White House, which in turn would promote an increased likelihood for a moderate candidate to succeed Powell. The press conference will be the main event, and we expect that Powell probably will stick closely to his talking points from Jackson Hole and September. This should be supportive for risk assets, smaller companies in particular, as we expect that Powell will affirm the resiliency of the U.S. economy as he keeps pricing for a December rate cut unchanged.
We’re also likely to see the Fed announce an end to quantitative tightening (QT) given: (a) increased pressures in funding markets, and (b) recent remarks from Fed officials, including Powell and Fed Governor Christopher Waller, suggesting that balance sheet runoff could be about to end. Even if the Fed doesn’t pull the plug on balance sheet runoff until December, this additional easing of financial conditions should be supportive for markets and would indicate a continued benign environment going forward.
As the Fed continues with the rate-cutting cycle, corporate earnings remain quite strong. We’ve consistently highlighted that consensus expectations for earnings growth have looked too low throughout 2025, and that also remains the case as we start looking deeper into 2026. The blended earnings growth rate for the S&P 500 stands at around 10% versus a 7.9% consensus expectation, with both the percentage of companies reporting positive earnings surprises and the magnitude of earnings surprises above their 10-year averages.
The increasing breadth across the market is being corroborated by earnings breadth across sectors. It’s particularly encouraging to see that every industry group within the financial sector is reporting positive earnings surprises, another strong reflection of the underlying economic backdrop.
While earnings growth in the United States has been quite strong, we’re also seeing tailwinds across other major geographies. The earnings cycle in India appears to be bottoming, and in Japan broad-based earnings upgrades are at the highest level in 12 months and should find additional support from the expansionary policies supported by Japan’s new prime minister, Sanae Takaichi. The strength we’re seeing across some key global markets certainly has staying power, one of the key reasons why we continue to advocate for investors to consider having exposure to tailwinds supporting non-U.S. markets.
There are understandably some worries over the market heading into the busiest week of earnings season with equities sitting at all-time highs. Expectations are high for clean beats and raises across the AI-related complex. We also need to see capital expenditures (capex) budgets at the hyperscalers continue to rise to support the big moves we’ve seen across the industrials and utilities sectors. But based on what we’ve heard from a variety of AI-related companies that have already reported very strong results, we’re optimistic about the path of spending going forward. While we’ve seen increasing breadth in the United States, selectivity has been critical across many other markets. The unifying theme globally is a rotation toward capital spending and productivity-driven industries, and away from defensives, with emerging markets remaining quite bifurcated; Europe, Australasia, and the Far East (EAFE) seeing rotation; while the United States remains the most structurally resilient. Here are a few key areas of focus:
Source: Bloomberg, as of 10/27/2025.
Geographic diversification. One of this year’s key themes is to increase exposure outside of the United States while remaining selective as not all markets or sectors are created equal. This playbook has contributed meaningfully to positive returns, with emerging markets strongly outperforming the S&P 500 year to date and EAFE not too far behind: The MSCI Emerging Markets Index is up 32.4% and the MSCI EAFE (Europe, Australasia, and the Far East) Net Index is up 27.9% year to date versus the 16.7% return of the S&P 500. But the gains have been bifurcated, and that will likely be the case going forward. Emerging market gains have recently been concentrated in South Korea and Taiwan due to the strength of the semiconductor trade, while trade tensions have recently pressured China, and India looks to be potentially breaking out of a lengthy period of underperformance year to date. That said, constructive dialogue in advance of the meeting between President Trump and Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation (APEC) summit on Thursday sent many Asian markets to all-time highs. Across EAFE, industrials are dominating with continued strength in aerospace and defense and improvement in machinery and electric equipment. Technology also shows renewed momentum and has tailwinds while financials have reversed and have begun lagging. Active management across international exposure has been a key to success as what you own has especially mattered this year.
Dips across the U.S. market. We’ve said all year that pullbacks should be used opportunistically, and that remains the case today. Unfortunately, there haven’t been too many pullbacks at the market level outside of the Liberation Day panic and a 3% decline earlier this month. That said, there have been plenty of more meaningful pullbacks at the single stock, sector, or industry levels around earnings, geopolitical news, and policy changes from Washington, D.C. We’re heading into the busiest week of earnings season at all-time highs with most of the mega-caps at similar levels. There is a very high bar that these companies have cleared before. We expect strong top- and bottom-line results — the question is whether guidance is good enough to clear that very high bar. We believe any dips are potential buying opportunities given the strength and durability of their growth trends and assuming there are no surprises out of left field. Similarly, dips across smaller companies also could be opportunities to build exposure to a still under-owned part of the market where earnings look to be inflecting higher.
Stop the fearmongering — AI is not a bubble. We’ve already had strong results from electronics and semiconductor companies whose commentary has only strengthened the bullish case for the durability of the AI trade. One semiconductor company CEO said AI demand is much stronger than was thought just three months ago. We also got some earnings results from data center-adjacent companies last week that were very encouraging. Investors should pay attention to the capex guidance we get from the five Magnificent Seven companies reporting this week as well as to their margins. We doubt we’ll see an increase in leverage or an erosion of profit margins as a result of the current level of spending. Adjacencies from the AI rollout are continuing to support the aerospace and defense industry, and semiconductors have been a consistent source of support for the global market. Again, selectivity matters as the market will severely punish companies that are simply riding the rising tide without proper results.
Catalysts this week include critical earnings reports from 47% of the S&P 500, including five of the Magnificent Seven. With volatility compressing after a spike in mid-October, big tech results will be key in steering sentiment going forward.
The Federal Open Market Committee meeting is widely expected to deliver a 25-basis point cut on Wednesday. Pay attention to the press conference and whether quantitative tightening is paused. Meeting results from the Bank of Japan come out on Wednesday night and the European Central Bank meets on Thursday morning, although no changes are expected at either meeting.
Flash gross domestic product and price change data from the Euro Area will offer updated clues on the region’s growth and inflation outlook. Presidents Trump and Xi are currently expected to meet on Thursday on the sidelines of the APEC summit, where trade negotiations over the weekend seem to be laying down the start of a deal that could be signed.
1 Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.
2 Unless otherwise indicated, all data cited is sourced from Bloomberg as of Oct. 24, 2025.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce
return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
Definitions
Artificial intelligence (AI) — A technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy.
Asia-Pacific Economic Cooperation / APEC — An economic forum created to support sustainable economic growth and prosperity in the Asia-Pacific region. Its member economies represent 21 nations in Asia, Australia, South America, and North America.
Balance sheet runoff — The practice of the U.S. Federal Reserve to reduce its balance sheet by not reinvesting some or all of the principal that is repaid when its securities mature.
Basis points (bps) — Measurements used in discussions of interest rates and other percentages in finance. One basis point equala 1/100th of 1%, or 0.01%.
Beat — When a company’s reported earnings or other business results exceed or are better than the expectations of analysts and others who follow the company’s stock.
Beat and raise — An earnings report that exceeds expectations and delivers guidance that also is better than expected.
Bifurcated — A trend in which economic or market activity is split into two distinct segments.
Blended earnings — A combination of actual results for companies that have reported earnings and estimated results for companies that have yet to report.
Breadth — The relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean. Market breadth is said to narrow when a smaller number of more extreme outliers drive the mean of an index further from its median.
Capital expenditures/capex — Monies used by a company to buy, improve, or maintain physical assets such as real estate, facilities, technology, or equipment, and may include new projects or investments.
Consensus estimates — Forecasts of a public company’s projected earnings, the results of a particular industry, sector, geography, asset class, or other category, or the expected findings of a macroeconomic report based on the combined estimates of analysts and other market observers that track the stock or data in question.
Consumer Price Index (CPI) — Measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.
Defensive stocks — Stocks that provide consistent dividends and stable earnings regardless of whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.
Earnings per share (EPS) — A company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Earnings surprise — When a company’s reported earnings either exceed or come in below the expectations of analysts who cover the stock.
Factor investing — An approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different factors.
Federal Open Market Committee (FOMC) — A committee of the U.S. Federal Reserve that sets monetary policy. It consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
Flash quarterly gross domestic product and monthly inflation data are released by the Euro Area to provide insight on developing trends in the region’s economic outlook.
Gross domestic product (GDP) — The total value of goods and services provided in an economy during a specified period, often one quarter or one year. Also known as headline GDP, nominal GDP is not adjusted for inflation.
Guidance — Statements from the managers of publicly traded companies that indicate whether they expect to realize near-term profits or losses and why.
Hyperscalers — The largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.
Inflection — A sudden change in the direction and rate of change of investor behavior regarding particular securities or areas of the markets. Inflections can lead to either positive or negative change.
Jackson Hole Economic Symposium — A meeting hosted annually by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo., that brings together dozens of central bankers, policymakers, scholars, and economists to discuss economic issues, implications, and policy options.
Liberation Day — A term used by President Donald Trump to refer to April 2, 2025, when he announced a wide range of unexpectedly high tariffs on many U.S. trading partners, triggering a global selloff of risk assets.
Macroeconomic — Relating to the branch of economics that focuses on seeking to understand the interactions between the markets, businesses, governments, and consumers that make up an entire economy.
Magnificent Seven — The seven largest stocks by market capitalization in the S&P 500 Index, as of Dec. 31, 2024. Collectively they made up more than 25% of the market capitalization of the entire index. They are Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
Market capitalization, or market cap — The total dollar market value of a company’s outstanding shares of stock.
Mega-cap stocks — The largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.
Megatrend — A widespread and long-term macroeconomic, technological, social, environmental, political, or other change that may develop slowly at first but that has a major, ongoing impact once it gets underway. Megatrends are distinct from smaller trends in business, economic, or other spheres of activity that have less far-reaching or enduring effects.
Momentum stocks — Stocks that benefit on the continuance of an existing market trend and tend to be bought by investors as they are rising and with the intention of selling them when they look to have peaked.
Monetary policy — The decisions made by central banks to raise or lower benchmark interest rates or otherwise tighten or loosen credit to influence an economy’s growth, inflation, or employment levels.
Moving average — A calculation that takes the arithmetic mean of a given set of data points measured over specific intervals of time.
Pullback — A temporary pause or drop in the price of a security that previously had been rising.
Quantitative tightening, quantitative tapering — An attempt by central bankers to reverse the effects of quantitative easing (QE), which is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. In quantitative easing, buying securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. It also expands the central bank’s balance sheet. In quantitative tightening, reducing those purchases is a policy primarily aimed at interest rates and at influencing investor perceptions of the future direction of interest rates.
Risk assets — Investments such as equities, commodities, high-yield bonds, real estate, and currencies, where the value may rise or fall due to fluctuating interest rates, changes in credit quality, default risks, supply and demand disruption, and other factors.
Rotation — The movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
Tailwind — An event or market force that exerts a positive influence on an investment’s performance.
Indices
S&P 500 Index — measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividends reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.
KBW Nasdaq Regional Banking Index — Reflects the performance of U.S. companies that do business as regional banks or thrifts.
The MSCI EAFE (Europe, Australasia, and the Far East) Net Index — measures the performance of performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the United States and Canada. The MSCI EAFE Net Index subtracts any foreign taxes applicable to U.S. citizens but not applicable to citizens in the overseas country.
The MSCI Emerging Markets Index — measures the performance of large and mid-cap stocks across 24 emerging markets (EM) countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. With 1,189 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
M-830215 Exp. 2/27/2026
