INSIGHTS
By
Brad Atkins,
Chief Executive Officer
Oct 20, 2025
As mid-October wraps up, equity markets face mixed signals—AI optimism, short-term funding strains, and elevated geopolitical and policy risks. Next week’s data may offer clarity, but the near-term path remains uneven.
What’s Driving Markets Right Now
AI optimism fuels tech rally
Renewed enthusiasm around artificial intelligence is giving tech stocks a lift. TSMC’s upbeat guidance and solid semiconductor earnings have reignited momentum across chip names, and adjacent sectors are seeing flows as well. (Reuters) Investors are beginning to price in broader monetization and expansion beyond the chip supply chain.
Signs of stress in the funding markets
Banks tapped the Fed’s Standing Repo Facility for over $15 billion in the past two days, the highest usage since the COVID era. (Financial Times) That suggests liquidity is tighter than appreciated, possibly constrained by the Fed’s quantitative tightening regime. While the facility is serving as a backstop, it raises questions about whether the Fed’s balance sheet policy is overextending its reach.
Trade war escalation and tariff uncertainty
Just last week, markets plunged after a renewed tariff threat on China, sparking draws toward safety assets and raising fears of a policy misstep. (Financial Times) The recent weakening in energy prices only adds to the unease: while lower oil benefits consumers, it also suggests waning global demand and margin pressure for producers. (The Wall Street Journal)
Banking and credit concerns
Credit risk is creeping back into the narrative. Regional banks, including Zions and Western Alliance, reported large loan charge-offs, prompting concern about spillover effects in the financial sector. (The Guardian) That, together with increased volatility and stretched valuations, is injecting caution into even bullish positioning.
The shutdown’s data blackout
A looming cloud over the backdrop is the continuing federal government shutdown. With key agencies shuttered or limited, many economic data releases – like inflation, consumer spending, and unemployment — may be delayed or missing entirely. (S&P Global) This data blackout creates a vacuum at a moment when markets need clarity.
What’s on Tap Next Week — Key Economic Events to Watch
Here are the most consequential releases and events that could move sentiment heading into next week:
Day | Event / Release | Why It Matters |
|---|---|---|
Tuesday | Consumer Price Index (CPI) | Critical in assessing inflation stickiness and validating or undermining rate-cut expectations |
Wednesday | Producer Price Index (PPI) / Core PPI | A leading indicator of input cost trends, helps gauge margin pressure ahead |
Thursday | Retail Sales / Consumer Spending | With consumer demand under the microscope, surprises here may shift growth expectations |
Housing Starts / Building Permits | A check on construction activity, especially with rates still elevated | |
All Week | Earnings releases | Big tech, industrials, banks — will guidance and forward outlooks reconcile or clash? |
Ongoing | Developments on the shutdown | Progress (or lack thereof) will determine how market participants interpret policy risk and data flow |
Because of the shutdown, some releases may be delayed or skipped altogether — which would heighten market sensitivity to whichever data do come through. (S&P Global)
What to Watch From Here — Risks & Strategies
Volatility remains the default
The confluence of trade risk, funding stress, and a data blackout makes volatility more likely than not. Surprise moves in yields, credit spreads, or inflation could trigger sharp reactions.
Breadth matters
A rally led only by megacaps or AI names without confirmatory support from cyclicals, industrials, or financials may be top-heavy. Market leadership is fragile in such environments.
Be selective and defensive
Quality, balance sheets, free cash flow — these metrics matter more than usual when macro crosswinds are strong. Underweight leverage and cyclical exposure.
Watch the Fed’s reaction function
If funding stress worsens or inflation prints soft, the Fed may be pressured to lean dovish sooner than expected — but missteps could also backfire if inflation reignites.
Prepare for asymmetric outcomes
With uncertainty elevated, skew is to the downside. Scenarios ranging from a soft landing to policy error are plausible — having hedges or optionality in exposure can help.
Final Thoughts
We’re in a precarious phase: optimism around AI and earnings potential is colliding with structural risks in funding and policy.
The absence or delay of key economic data (thanks to the shutdown) leaves markets hanging on whatever signals they can find — whether that be corporate guidance, liquidity metrics, or geopolitical headlines.
Next week may not resolve all these questions, but it could swing sentiment sharply in one direction or another.
For investors, that means staying nimble, watching liquidity and credit metrics closely, favoring quality, and preparing for surprises.
Disclosure:
© 2025 Morningstar, Inc. All rights reserved. The Morningstar Rating™ is for the Class A only; other classes may have different performance characteristics. The rating is not a recommendation to buy, sell, or hold the fund. Morningstar does not guarantee its accuracy or completeness and is not responsible for damages or losses arising from any use of this information.
Investors should consider the Fund’s investment objectives, risks, charges, and expenses before investing. The prospectus, containing this and other information about the Fund, should be read carefully before investing. The prospectus is available at the download icon below or by calling 800-711-9164. Current and future holdings are subject to change and risk.
Investments in the Fund are subject to investment risks, including the possible loss of some or all of the principal amount invested. There is no assurance that the Fund will be successful in meeting its investment objective. The Fund is subject to the following additional risks:
▪ Active Trading Risk: Active trading may result in added expenses, a lower return, and increased tax liability. Since the Fund’s advisor engages in high turnover trading strategies, the Fund will have high portfolio turnover rates.
▪ Closed-End Fund Risk: Closed-end funds (CEFs) are subject to investment advisory and other expenses, which will be indirectly paid by the Fund resulting in duplicative fees and expenses. CEFs are also subject to management risk because the advisor to the underlying CEF may be unsuccessful in meeting the fund’s investment objective.
▪ Equity Securities Risk: Equity securities are subject to changes in value, and their values may be more volatile than those of other asset classes. These changes in value may result from factors affecting individual issuers, industries, or the stock market.
More information about these risks can be found in the Fund's prospectus.
Vigilant Distributors, LLC., Member FINRA/SIPC. There is no affiliation between Modern Capital Management Co., including its principals, and Vigilant Distributors, LLC.
- No Bank Guarantee
- May Lose Value
- NOT FDIC-INSURED