F.N.B. Wealth Management Fast Five
We are pleased to introduce the F.N.B. Wealth Management Fast Five — a monthly overview designed to give you a clear, concise quick look at the trends shaping our economic outlook.
We are pleased to introduce the F.N.B. Wealth Management Fast Five — a monthly overview designed to give you a clear, concise quick look at the trends shaping our economic outlook.
October ended with more treats for investors than tricks as the S&P 500, fueled by a continued AI spending boom and strong earnings reports from a broad swath of U.S. companies, ended up +2.3% for the month. The tech-heavy Nasdaq was +4.7%, and small companies also participated with the Russell Small Cap Index up +1.8%. International markets also did well in October, with international developed markets (MSCI EAFE Index +1.2% m/m) and emerging markets continuing their year of outperformance (MSCI Emerging Markets Index +4.2% month-over-month (m/m)).
The bond market saw some flattening of the yield curve as the 2-year Treasury yield stayed steady at 3.60% and the 10-year yield moved lower by –.10% to 4.10%.
Gold set another all-time high in October but did pull back towards the end of the month, ending up +3.7% for the month.
Taken together, the big takeaway for the month is that diversification still matters.
Despite the absence of economic data being produced due to the U.S. government shutdown, the Fed felt they had enough evidence of labor market softening to cut interest rates again in October. Federal Reserve Chairman Jerome Powell even noted in his press conference, “risks to employment rose in recent months.” The new Fed Funds target range is 3.75% to 4.00%. Markets became uneasy when Chairman Powell said at his press conference, “a further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.” A bit of a twist for this meeting was that the FOMC has decided to end their quantitative tightening (QT), starting December 1. This decision equates to approximately another 25-basis points to be cut. This is important because monetary policy works with a lag and typically takes approximately six-months to have a full effect on the U.S. economy. This means the latest Fed decisions will be supportive of economic activity well into the first half of 2026.
Even with the government shutdown, the Bureau of Labor Statistics (BLS) was tasked with calculating the Consumer Price Index (CPI) for September, so that the Social Security Administration could make a cost-of-living adjustment for Social Security benefit recipients. Following the inflation report, the Social Security Administration announced that benefits will increase by +2.8% in 2026, which means the average retired worker will receive an additional $56/mo. making the average monthly income $2,071. The rise is slightly behind the headline CPI, which ticked up +0.3% m/m in September — the smallest increase in 3-months — while core CPI (less food and energy) was +0.2% m/m. Both measures were 0.1% below expectations, and on a year-over-year basis, both came in at +3.0%. This was good news for markets, as it supported the Fed’s decision to ease monetary policy. We would point out, however, there were some signs of tariff impacts in the CPI report, as things like home furnishings were +3.0% year-over-year (y/y) (biggest move since mid-2023) and audio and video equipment increased +1.6% y/y (highest since 2021).
There were several trade related headlines throughout the month, but the most notable was a meeting between President Trump and President Xi of China. This was their first in-person meeting since the former took office earlier this year. Tensions were high heading into the negotiations and there was hope the two nations could reach some long-term resolutions. The outcome of the meetings was a one-year truce that unfortunately did not resolve many of the lingering issues between the two countries. A bright spot for U.S. farmers, though, is the reengagement of soybean sales to China. With the truce in place, the average tariff rate for imported goods to the U.S. is much lower than original expectations. However, customs revenues are still at the highest levels in history. Whether or not those tariffs get passed on to U.S. consumers is yet to be seen.
Unfortunately, we continue to see a disconnect between the soft data (surveys) and the hard data (economic activity). Activity levels stabilized through the third quarter and into the start of the fourth quarter. However, soft data like the Conference Board’s U.S. Consumer Confidence Index fell for the third straight month in October, coming in at 94.6. This was down one point from September. An interesting takeaway from the October survey is that respondents’ views of their current situations went up, but the expectations (six months) portion of the survey dropped to the lowest level since June (71.5). Concerns over labor market conditions and inflation drove the decline. The question is, at what point do consumers stop spending due to their concerns about the future? This is particularly true for states like Pennsylvania and Ohio, where “present situation” responses increased significantly from September (Pennsylvania from 110.6 to 118.9, and Ohio from 124.6 to 134.5).
Auto loans, which historically have been a rather stable lending segment have seen delinquency rates increase more than 50% over the last 15 years. This may not come as a surprise since the average auto loan balance has grown 57% since 2010, and more recently, car prices are up more than 25% since 2019. The average new car price is now over $50,000, and the average monthly loan payment is $767/mo., which is creating delinquencies across the income spectrum. Unfortunately, a lower interest rate environment probably is not enough to reverse this trend.
Earnings are supportive of equity prices:
As of this writing, the third quarter earnings reports were following the multi-year trend higher. As of October 31, 304 companies within the S&P 500 had reported, with 82.6% of them beating expectations. The earnings per share growth rate for the S&P 500 was +12.8% quarter-over-quarter. The growth in earnings has been supportive of equity prices even as markets reach new highs.
S&P 500 Earnings Per Share Growth
U.S. housing improves, but challenges persist:
The U.S. housing market has been struggling with higher prices and higher interest rates for the last couple of years. In September U.S. existing home sales (which account for more than 2/3 of all housing transactions) increased +1.5% to 4.06 million annualized. This was a positive development that coincided with a decline in the average mortgage rates across the country. Unfortunately, the affordability of homes continues to be challenging as the average sale price nationally increased +2.1% year-over-year to $415,200. Another bright spot in the September data, however, was inventory levels of existing homes jumping 14% year-over-year to 1.55 million. This could help ease some pricing pressures for buyers.
U.S. Existing Home Sales vs. Inventory Levels
Important Disclosures
This report reflects the current opinions of the authors, which are subject to change without notice. Various factors including changes in market conditions, applicable laws, or other events may render the content no longer accurate or reflective of our opinions. Information in this report is based upon sources believed, but not guaranteed, to be accurate and reliable. The report does not constitute an offer, solicitation, or recommendation to buy or sell any security or take any particular action, nor does it include personalized investment advice or account for the financial situation or specific needs of any individual. Investing involves risk and past performance is no guarantee of future results, and there can be no assurance that any action taken based upon the information in this report will be profitable, equal any historical performance, or be suitable for individual situation.
Indices are not available for direct investment, and index performance does not reflect the expenses or management fees associated with investing in securities. Index price level and return information included in this report is extracted from Bloomberg but indices are ultimately maintained, and return and characteristics information published, by each index provider. Definitions of common indices include:
Definitions for other common terms that may be referenced in this report include:
If you have a question about any term referenced in this report and not specifically defined above, please contact your F.N.B. Wealth Management Portfolio Advisor or another qualified professional.
F.N.B. Wealth Management (“FNBWM”) refers to the investment management, custody and trust services offered by First National Trust Company (“FNTC”) and the investment management services offered by FNTC’s subsidiary, a registered investment adviser, F.N.B. Investment Advisors, Inc. (“FNBIA”). FNTC is a subsidiary of First National Bank of Pennsylvania (FNBPA) and F.N.B. Corporation (FNB). Accounts are not insured by the FDIC or any other government agency and are not deposits or obligations of or guaranteed by FNBPA or any FNB affiliate. Investments are subject to risk including loss of principal.
