Recent developments in global trade, inflation, monetary policy, and corporate earnings paint a nuanced picture of the current economic landscape. The easing of China-U.S. trade tensions and the Federal Reserve’s policy adjustments are significant, while inflation remains a concern despite some moderation expected. Corporate earnings continue to show robust growth, driven largely by major tech companies.

China-U.S. Trade Tensions Ease, for Now

In a notable development at the APEC 2025 summit, Presidents Trump and Xi Jinping reached a tentative agreement, agreeing to suspend certain trade restrictions for one year. China is suspending its rare earth restrictions in return for the U.S. backing down on its “50% rule,” which had expanded export controls. The U.S. is also lowering fentanyl tariffs to 10% from 20% as China agrees to crack down on fentanyl-related exports. This brings Trump’s second-term tariff on China down to 20%, a level still higher than some allied trading partners but significantly lower than the threatened 100% tariffs. China will resume purchases of U.S. soybeans and agricultural goods, and further discussions on TikTok’s sale were held. Notably, Nvidia chips were not on the agenda.

On a separate but related note, China’s Fourth Plenum meeting outlined a 5-year plan focusing on manufacturing growth, technological self-reliance, and domestic demand-driven economic development – a clear signal of their strategic priorities.

Bottom line: Tensions remain between these two leading global economies, but for now, both sides recognize they can’t go it alone – leading to moderation of trade policy but also continued focus on domestic policy across critical industries and national interest.

Data sources: Bloomberg, 22V Research.

Inflation: A Mixed Bag

Despite the government shutdown, the September CPI was released so that the Social Security office could calculate its annual cost of living adjustment (COLA). Social Security checks will be increasing 2.8% in 2026.

Headline CPI advanced 0.3% month-over-month and core CPI advanced 0.2% month-over-month, while both increased 3% year-over-year. While this remains above the Fed’s 2% target, the Fed largely expects the tariff impact to be a short-lived, one-time price adjustment, thus they expect future inflation to moderate in time.

Data sources: Bureau of Labor Statistics, Bloomberg, 10/31/2025. Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.

Services vs. Goods Inflation

Goods inflation is ticking higher, reflecting the impact of tariffs, although it accounts for a smaller portion of the overall CPI basket. Services inflation is what’s keeping overall inflation higher. While this is not ideal, it is worth pointing out that services (ex-shelter) inflation is driven in large part by labor inflation (wages), so this stickiness is more likely associated with nominal economic growth being firm, reflecting demand that is still supportive and continued employee wage growth. Arguably, too quick of a slowdown in ex-shelter services inflation could reflect more quickly slowing demand, which we’re not seeing at this time.

Data sources: Bureau of Labor Statistics, Bloomberg, 10/31/2025. Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.

Fed Shifts Gears

The Fed cut interest rates by 0.25% to 3.75-4.00% in October and announced the end of Quantitative Tightening (QT) in December. This move follows significant Quantitative Easing (QE) during the Covid pandemic and subsequent balance sheet reduction since June 2022. The Fed aims to maintain 8-10% of GDP in bank reserves for market liquidity and credit creation. Chair Powell’s comments suggest that further rate cuts are not a foregone conclusion, reflecting the committee’s diverse views on navigating inflation and labor market conditions.

Source(s): Federal Reserve, Bloomberg, 10/31/2025. US Reserve Balances With Federal Reserve Banks tracks the aggregate assets and liabilities of banks within an economy (including private or commercial banks, central banks or both).

Earnings: The Mag 7 Shine On

Third-quarter earnings for S&P 500 companies grew 10.7% year-over-year, surpassing expectations of 7.9%. A significant 83% of companies beat earnings expectations, although the magnitude of these beats was below average at 5.3%. The “Mag 7” tech companies, particularly Alphabet, Amazon, Microsoft, and Apple, drove earnings growth. Analysts forecast double-digit earnings growth in four of the next five quarters, indicating continued strong corporate performance. As we look ahead, the interplay between these economic indicators will be crucial in shaping market trends and investor sentiment.

Source(s): FactSet, as of 10/31/2025. Mag 7 is represented by Nvidia, Apple, Microsoft, Meta, Alphabet, Amazon, and Tesla.

This is a summary of our Monthly Market Insights report.