Our current stock allocation is in an Over Weight position. This allocation of stocks vs. bonds is driven by many variables we monitor, including our risk signals. These signals may lead to a shift in stock weightings in SFMG portfolios’ target allocations. This is not meant to be a specific allocation recommendation as this may vary across client portfolios.

• The current U.S. government shutdown has become the second-longest in history as the stalemate between the two parties over expiring healthcare subsidies continues. Lawmakers and congressional aides say there is a growing possibility the closure could extend into November and surpass the 35-day shutdown from President Trump’s first term.
• Despite the shutdown, the government recalled furloughed employees to release September’s Consumer Price Index (CPI) report, needed to calculate Social Security payments. The inflation data, which had been delayed, came in slightly below expectations—but still hovering at 3% with no meaningful improvement towards the Fed’s 2% target.
• China’s real Gross Domestic Product (GDP), measuring the total value of goods and services produced, slowed in Q3 to 4.8% year-over-year—the slowest pace in a year—driven by weaker consumer and investment spending. The nation’s 5% growth target for 2025 remains attainable though after a strong first half.

• Regional bank stocks tumbled after Zions Bancorporation and Western Alliance Bancorporation disclosed potential commercial loan fraud. Though the amounts were small relative to their balance sheets, the news reignited concerns about broader regional lending weakness following last month’s bankruptcies of Tricolor and First Brands. The KBW Regional Banking Index fell over 6% on 10/16—its largest single-day drop since April.
• The U.S. Treasury announced sanctions on Russia’s two largest oil producers, Rosneft and Lukoil, aiming to pressure Moscow toward a cease-fire in Ukraine. The following day, the European Union imposed additional sanctions targeting key Russian sectors, including energy and finance. The moves sparked a rally in oil prices, with WTI crude surging over 5% on 10/23 to a two-week high and finishing the week up 7.3%.
• Roughly 25% of S&P 500 companies have reported third-quarter earnings (as of 10/24), with ~85% beating earnings estimates. Results have been led by technology and AI-driven firms, while health care and some consumer sectors lag. The magnitude of upside surprises is smaller, suggesting strong results are largely priced in, with the S&P 500’s forward price-to-earnings (P/E) ratio—a valuation metric which measures stock price relative to expected earnings—at 22.6x, compared with its 10-year average of 18.6x.

On October 9, China further tightened export controls on rare earth metals—critical for electric vehicles, defense systems, and advanced technologies—prompting the U.S. to respond with an additional 100% tariff on Chinese imports. Given China’s near-monopoly in refining (92%) and magnet production (98%), the move reignited concerns about supply chain vulnerabilities and a potential escalation in trade tensions. While fears have eased following productive discussions between U.S. and Chinese officials on October 26, a final resolution has yet to be reached.

A few high-profile bankruptcies, including auto parts manufacturer First Brands and subprime auto lender Tricolor, have raised concerns about credit quality and the health of the corporate bond market. However, these failures appear largely idiosyncratic rather than indicative of systemic stress. Corporate default rates have remained elevated since late 2023, with the speculative-grade default rate at 4.8% as of August 2025—up from pandemic-era lows but roughly in line with historical averages. While high-yield bond fundamentals have weakened somewhat as interest rates have risen, most issuers still show healthy balance sheets and are capable of servicing their debts.

Markets often place more weight on meeting expectations than on making real progress toward stated goals—a nuance underscored by their response to the latest CPI report. Although inflation data modestly exceeded forecasts, it did little to advance the path toward the Fed’s 2% target, yet markets were unfazed and continued to grind higher. Equity markets’ resilience amid rising economic risks—whether from inflation, a softening labor market, or housing market concerns—suggests we may be entering an “all news is good news” phase, when every development is interpreted as either economic strength or justification for rate cuts. Such environments often fuel “melt-ups,” with stock prices climbing from already stretched valuations. Passive portfolios may be especially vulnerable when these rallies are driven by a narrow theme—such as artificial intelligence—which can heighten concentration risk and increase volatility if sentiment shifts. While maintaining some exposure to this momentum is sensible, we believe diversified portfolios should also include high-quality companies across other sectors and styles to balance risk and preserve long-term resilience. Despite the lack of economic releases due to the ongoing government shutdown, there are still several important developments to watch: major central bank meetings, headlines surrounding trade negotiations and disputes with China and Canada, and, of course, additional third-quarter earnings reports. We will be monitoring these earnings closely in this final week of October, as many of the highest-profile tech names are set to report—each with significant potential to move markets.

The purpose of the update is to share some of our current views and research. Although we make every effort to be accurate in our content, the data is derived from other sources. While we believe these sources to be reliable, we cannot guarantee their validity. Charts and tables shown above are for informational purposes, and are not recommendations for investment in any specific security.