Here's the Deal

This past week offered a powerful reminder that numbers rarely tell the whole story. On the surface, bank earnings looked impressive — a sign, perhaps, that the system is still holding together. But just beneath that glossy headline lies a shift that every investor should pay attention to.

When banks start reporting record profits while quietly tightening credit, it’s often a signal that the cycle is changing shape. The tone from management teams has turned more cautious, the data calendar has thinned due to the government shutdown, and geopolitical tensions are once again testing global supply chains.

While the surface still looks calm, the current underneath continues to pull in a new direction. Let’s look at what this week’s developments are really telling us about where we stand in the credit cycle, and what to watch next.

Bank Earnings: Strong Results with Growing Caution

Last week, I mentioned we should watch bank earnings closely. Well, they didn't disappoint—but the story they tell is more nuanced than the headline numbers suggest.

The Headlines: Impressive Performance

The major banks delivered strong results across the board. JPMorgan Chase, Goldman Sachs, Citi, Wells Fargo, Bank of America, and Morgan Stanley all beat analyst expectations. Here's what stood out:

Investment banking made a comeback. Goldman Sachs saw advisory fees jump 42% year-over-year, while JPMorgan and Citi benefited from stronger dealmaking and trading activity. Bank of America's investment banking revenue surged 43%, and Morgan Stanley posted a record quarter.

Net interest income remained solid. Most banks saw their net interest margins expand, supporting higher earnings even as the lending environment shifts.

Consumers held up better than expected. There were no broad signs of distress in credit card or retail portfolios—a positive signal for the economy's near-term health.

The numbers were good enough that U.S. investment-banking fees reached $47.8 billion in 2025, the highest since 2000, with M&A dollar volume up 24%.

What's Driving the M&A Boom?

Here's something counterintuitive: M&A activity often peaks when the economy is slowing, not accelerating. Why? Because well-capitalized companies see opportunity in uncertainty. They can acquire assets at better valuations and consolidate market position while competitors struggle with tightening conditions.

This dynamic is playing out now. Corporate confidence has returned after muted deal activity in prior years due to the Biden Administrations attempts to stifle it, and strong equity markets are giving companies the currency they need to make deals happen. Banks are optimistic this momentum will continue, as long as the favorable conditions persist.

But Here's What Keeps Bankers Up at Night

Despite the strong earnings, management teams were notably cautious. Three risks dominated their commentary:

1. Commercial Real Estate Is Flashing Warning Signs

Regional banks are particularly exposed here, with some holding up to 44% of their loan books in commercial real estate. The office sector is especially concerning:

• Delinquency rates on U.S. office loans are approaching 10.4%, nearing the 2008 peak crisis level of 10.7%.

• Over $1 trillion in CRE debt matures by the end of 2025.

• Higher interest rates and declining property values continue to make refinancing difficult.

2. The Shadow Banking Problem

Banks are increasingly worried about their exposure to non-bank financial institutions (NBFIs)—essentially "shadow banking." Recent high-profile defaults in Tricolor and First Brands, and now this week’s issues at Zions Bancorp and Western Alliance involving collateral misrepresentation, have highlighted how opaque and risky these exposures can be.

The problem? These loans are hard to monitor, subject to higher loss rates, and can deteriorate rapidly.

3. Credit Standards Are Tightening

In response to these concerns, banks have tightened lending standards across most categories. They're also scrutinizing fraud risk and underwriting quality more carefully, particularly after reports of loan irregularities among some regional lenders.

The large banks appear well-positioned thanks to diversification and strong capital levels. But if problems at regional banks or in specific sectors spread, we could see broader impacts.

How the Charts Look for Financials

The charts for JPMorgan, Citi, Wells Fargo, and Goldman Sachs don’t look bad. At least not yet. But they do appear a bit toppy, meaning their recent strength may be running out of steam. If that proves true, it would be another classic sign that the economy is transitioning from a period of Economic Slowdown into the early stages of Recession.

At the very least, it’s definitely one more thing to keep an eye on in the coming weeks and months.

$JPM ( ▲ 1.61% ) JP Morgan Chase & Co.

$C ( ▲ 2.3% ) Citigroup, Inc.

$WFC ( ▲ 3.29% )  

$GS ( ▲ 1.67% ) Goldman Sachs Group, Inc.

US–China Trade War: A Week of Brinkmanship and Backpedaling

After last week’s threat by President Trump to impose a 100% tariff on all Chinese imports, set to begin November 1, in response to China’s tightening export controls on rare earth minerals. The rhetoric intensified and then cooled down as the week progressed.

China’s response was swift and defiant. They:

• Canceled a planned high-level call with U.S. officials.

• Called the U.S. move “hypocritical.”

• Imposed retaliatory port fees on American vessels, raising costs for U.S. exporters.

• Sanctioned subsidiaries of a Korean shipbuilder with U.S. interests.

Markets took notice. Oil prices fell to a five-month low as traders braced for slower global growth and weaker demand if the standoff continued.

By midweek, the tone began to shift. On Thursday, President Trump declared, “We are in a trade war now,” but quickly added that things “could improve with future talks.”

By week’s end, both sides began easing back from confrontation:

• Negotiations are back on. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng agreed to resume in-person talks this week in Malaysia.

• A potential summit looms. Trump signaled interest in meeting Xi Jinping at the APEC Summit in South Korea later this month. A possible turning point.

• Tariff flexibility is emerging.

  • A planned 25% tariff on imported medium and heavy-duty trucks and parts was delayed until Nov. 1, 2025, after pushback from automakers and logistics firms.

  • A proposed 100% tariff on branded pharmaceutical imports was paused as the administration opened talks with drugmakers on building new U.S. production capacity.

  • New tariffs on timber, wood products, and furniture, however, still took effect as scheduled.

• China kept its door ajar. While maintaining its rare-earth export limits, Beijing emphasized its willingness to keep talking.

At this point, the rhythm of these confrontations has become clear:

1. Escalate to create leverage.

2. Watch markets react to gauge the pain threshold.

3. Offer off-ramps through scheduled talks or delayed deadlines.

4. Step back slowly while framing each move as a domestic win.

It’s a carefully choreographed dance along the edge of a cliff. Loud enough to look tough at home, but cautious enough to avoid an actual plunge.

The Administration Begins to Temper Tariff Strategy and Growth Promises

The past few weeks have marked a noticeable shift in tone from the Trump Administration. The once-confident forecasts of “a new Golden Age in America” are being quietly replaced with more cautious language — now it’s “wait until next year.”

In political speak, that translates to, “Our earlier assumptions might have been a bit too optimistic.” Of course, in today’s hyper-partisan climate, admitting that directly is impossible.

Adding to this shift, The Wall Street Journal noted that the administration is also beginning to “tiptoe away from many of Trump’s signature tariffs.”

Both developments, the retreat from aggressive growth targets and the softening stance on tariffs, suggest that economic realities of tariffs are beginning to catch up with political promises.

If you haven’t yet, I strongly recommend reading both articles (linked in the blue titles above), especially the one on tariffs. It highlights how the practical consequences of those policies are now beginning to take hold.

To his credit, Trump has recently secured several significant geopolitical wins. Huge victories few modern presidents could claim. It would be unfortunate if that momentum were undermined by continuing to heed the advice of the economic extremists still whispering in his ear.

Earnings Season: Week 2 of 6

On top of the bank earnings already highlighted, TSM and ASML reported earnings that outperformed expectations on AI-driven demand but both pointed to significant headwinds from geopolitics and cyclical risk as they look ahead to 2026.

• Both companies’ results confirm surging AI infrastructure demand is still powering the semiconductor cycle.​

• ASML’s EUV order book and TSM’s leading-edge foundry capacity help solidify long-term dominance, but both highlighted the need to navigate risks tied to tariffs, export restrictions, and China’s regulatory environment.​

The upcoming week will see a broad slate of sectors reporting earnings, with a particular focus on Industrials, Health Care, Information Technology, Financials, Consumer Discretionary, and Energy companies.​

This cross-sector wave of earnings will provide important insight into industrial demand, tech spending, consumer resilience, credit conditions, energy trends, and health care as the Q3 season accelerates.

Inflation Reports Delayed Again

Once again, the release of key inflation data has been delayed due to the ongoing government shutdown. The Consumer Price Index (CPI) report, originally expected this week, has now been rescheduled for October 24, 2025.

Other major reports from the Bureau of Labor Statistics (BLS), including the Producer Price Index (PPI), nonfarm payrolls, Retail Sales, and Housing Starts, remain in limbo with no confirmed release dates until normal government operations resume.

The CPI, however, is a special case. A small group of BLS staff has been temporarily recalled to complete this one report. The reason: it’s required by law for calculating Social Security’s annual cost-of-living adjustment (COLA). In other words, even during a shutdown, this data must be produced on schedule to ensure benefits are properly adjusted.

Markets:

Markets were range bound all week after last Friday’s sell off.

Signals to watch for the markets next major short term move include:

• The wedge pattern which developed on the 4hr and 30min charts.

• How Bitcoin continues to perform with the current broadening formation.

• And how the VIX (Volatility Index) performs.

On both the 4-hour and 30-minute charts, keep an eye on the wedge pattern that’s been forming. The key signal to watch is a break above the blue downward-sloping trendline. If that breakout occurs and the market successfully retests and holds that level, it would likely confirm momentum for a continued push higher.

The opposite is also true. If the market fails to break out and instead breaks down through support, that would point to a continuation of the current retracement.

However, there’s one more layer to keep in mind. What happens after the initial breakout or breakdown. If the move fails to hold during the retest, it can often trigger a sharp reversal in the opposite direction. As the old trader’s adage wisely reminds us, “From false moves come big moves in the opposite direction.”

For Bitcoin, look for the broadening formation to either break down for the market to continue retracing, or for $118K to hold for a resumption of markets to the upside.

The VIX (Volatility Index) may be the first to offer us a major clue as it broke down and fell all day Friday after topping out around 29. Should this breakdown continue past 20 and fail to get back above 20 this week, it could be a signal that the markets are ready to once again resume higher.

$SPY ( ▲ 1.04% ) S&P 500

If the market weakness does indeed persist over the next few weeks, then the following targets from last week are levels to keep an eye on for support in SPY:

• Short-Term Outlook:
  I expect weakness to continue early in the week, though a bounce in the first half is likely. I’ll be watching for support around $645ish. If that holds, a rebound toward $660ish makes sense — but I expect that area to act as resistance and push prices back down.

• Medium-Term Support Zones:
  My two main levels for SPY to ultimately hold are $630ish and $600ish, with the higher probability near $600.
  Those are the zones where I’ll have a list of names ready to buy aggressively — stocks that have shown relative strength and technical resilience.

• Lower-Probability Scenario:
  There’s still a possibility that SPY could test $575–$565 for ultimate support. It’s not my base case, but it’s certainly on the radar.

$DIA ( ▲ 1.14% ) Dow Jones Industrial Average:

$QQQ ( ▲ 1.26% ) Nasdaq:

$IWM ( ▲ 1.95% ) Russell 2000 (Small Caps):

Medium term I remain bullish, but in the short term markets are in no-man’s land and so nothing would surprise me. Look to the signals listed above to get involved at the earliest possible time for the short term move.

One of the more interesting developments in recent weeks has been the relative strength in the Healthcare and Consumer Staples sectors. Historically, these areas tend to outperform when the economy begins transitioning into a recession. It’s too early to call this a definitive trend, but it’s certainly something worth watching closely in the weeks ahead.

WTF of the Week

Quote of the Week:

Click the Leave a comment button if you have any questions or comments, or need something clarified. Don’t be shy. The main point here is to improve constantly. Questions and comments help us both and tells me what you are interested in learning/hearing more about.

If you enjoyed this post or found it useful, do me a favor and hit the like (heart button all the way back to the top of the post and to the left) and share it with others.

Learn. Improve. Pass on.