2025 | October 20

The Markets

Markets Gain Amid Volatility



Each of the major U.S. indexes posted a gain of around 2% as stocks rebounded from a setback the previous week, when indexes fell more than 2%. Stock trading was choppy amid big price moves for assets such as cryptocurrencies and gold.

Stocks’ weekly gains didn’t come easily, as anxieties over trade policy and regional bank lending risks produced sizable – but fleeting – market swings. The CBOE Volatility Index (VIX) on Friday morning briefly reached its highest intraday level since April before retreating in the afternoon. By Friday’s close, the VIX was down slightly for the week.  

The major U.S. banks that kicked off earnings season exceeded analysts’ third-quarter profit and revenue expectations owing in part to rising investment banking income. As of Friday, analysts projected that financials sector earnings rose 18.2% – above the 8.5% growth forecast across all sectors in the S&P 500, according to FactSet.

The price of the most widely traded cryptocurrency briefly fell on Friday morning to its lowest level in three months before modestly rebounding in the afternoon. Bitcoin slipped below $104,000 – around 17% below a record high of more than $126,000 reached less than two weeks earlier, on October 6. 

As stocks fell on Thursday, the yield of the 10-year U.S. Treasury note slipped below 4.00% for the first time since April, when tariff concerns boosted investor anxiety. The 2-year Treasury’s yield also fell, briefly sinking below 3.40% on Friday – the lowest in more than three years. 

The price of U.S. crude oil fell for the third week in a row and sank on Friday to the lowest level in more than five months. Oil briefly traded below $57 per barrel before rebounding in the afternoon. Concerns about a potential oil supply glut and the economic outlook have recently weighed on oil prices. 

Although economic reports continued to be delayed because of the U.S. government shutdown that began on October 1, the Bureau of Labor Statistics announced plans to issue a monthly inflation update on a delayed basis on Friday, October 24, so that the agency meets a statutory deadline involving benefit payments tied to inflation. The most recent Consumer Price Index report on September 11 showed a 2.9% annual inflation rate in August, up from 2.7% the previous month. 

Source: John Hancock Investment Management 

Mortgage Rate Update

The average rate on a 30‑year fixed mortgage has dropped to about 6.27%, down from approximately 6.30% last week, according to Freddie Mac. Meanwhile the 15‑year fixed rate is averaging around 5.52%. While these rates are lower than earlier in the year, they remain well above the ultra‑low levels seen during the pandemic.

Several factors are contributing to this trend. Treasury yields (particularly the 10‑year) have eased, which helps push mortgage rates downward. At the same time, the demand for refinancing is muted because many homeowners already hold loans at lower rates, which reduces downward pressure on lender pricing. Also, although the rate cut signals from the Federal Reserve have raised expectations of future declines, affordability remains a concern for many buyers – which seems to be keeping overall mortgage activity subdued.

What it means going forward: For homebuyers and homeowners thinking about refinancing, the recent dip in rates may present a decent window of opportunity. That said, with rates still in the mid‑6% range for 30‑year fixed loans, affordability is tighter than it was when rates were near historic lows. Also, because much of the mortgage market is influenced by broader economic signals (inflation, Fed policy, bond markets), the path of future rate movement isn’t guaranteed. Analysts expect rates to hover around the mid‑6% range for the near term.

The Stories That Shape the Economy

There is a branch of economic study called Narrative Economics. It’s the brainchild of Nobel Prize–winning economist Robert Shiller who believes that viral stories (narratives) influence human behavior and move the economy.

Ernie Tedeschi, Director of Economics at the Budget Lab at Yale, talked about narratives in a Bloomberg opinion piece recently. He said three stories are influencing our perceptions about the economy and he believes these narratives should be treated with some skepticism.

Narrative #1: Artificial intelligence (AI) is behind the surge in U.S. economic growth. Tedeschi says AI may be getting too much credit. Investment in AI surged by 40 percent – to $1.4 trillion – from 2021 to 2025. What people forget is that a lot of that investment came from outside the United States.

During the first half of this year, “AI-related commodities — software, information processing equipment and data centers — accounted for 1.3 percentage points of the 1.6% annualized real GDP growth…a staggering amount.” However, once AI-related imports are subtracted, AI contributed 0.5 percentage points to GDP. AI still a played a significant role in growth, but other factors are also having a sizeable effect.

Narrative #2: AI is weakening the labor market. There is a lot of talk about how AI is replacing, or will replace, workers. This idea should be taken with a grain of salt because, “The biggest increase in unemployment over the last two years is in occupations with both the highest and lowest exposure to AI.” In other words, other factors are contributing to unemployment.

Narrative #3: Wealthy consumers are driving economic growth. Tedeschi said that it’s possible the United States is in a K-shaped recovery where the wealthy are doing well, while people with less wealth are not. However, he cautioned that “reliable spending data, with the necessary detail to track different households and validate private data, is often lagged by years.”

The Economist recently offered a new narrative that may influence our outlook: The stock market is responsible. Here’s what they said:

“But does the stock market power the economy? At most points in time, it would be a ridiculous question. In recent months, though, the rise in American share prices has coincided with, and been fed by, a rush of popular enthusiasm for investing. And as people see the [markets] go up, they become more likely to spend. Now the answer to the question has important implications for the path of America’s stock market boom and its economy.”

It’s something to think about.

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Charles Schwab

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Emily Triano

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