Weekly Market Commentary October 27, 2025

WEEK IN REVIEW

The most impactful release of the week was Friday’s Consumer Price Index (CPI) report. Both headline and core CPI came in slightly below expectations, with core CPI rising 0.2% versus 0.3% anticipated. Given the Fed’s preference for core inflation as a gauge of underlying price pressures, this softer print suggests inflation is sticky but trending lower, though still above the Fed’s target.

Another notable development was the 5-year Treasury Inflation-Protected Securities (TIPS) auction, which cleared at 1.182%, down from 1.650% in the prior auction. Interestingly, the 5-year breakeven inflation rate held near 2.42%, signaling markets expect lower real rates while inflation expectations remain anchored. The rationale is unclear — whether it reflects slowing growth, a flight to quality, or expectations of a lower Fed Funds rate as the Fed gravitates toward a lower neutral rate is yet to be determined. This dynamic likely explains why longer-dated yields, such as the 20-year Treasury auction, also came in below previous levels, reinforcing the notion that investors anticipate lower real rates despite static inflation expectations. On the consumer side, the University of Michigan finalized October inflation expectations, showing 1-year expectations declining in line with forecasts, but 5-year expectations surprising to the upside at 3.9% versus 3.7% previously. This divergence suggests consumers anticipate higher inflation over the long run, even as near-term pressures ease.

Quick Hitters

• Housing: September existing home sales rose 1.5% month-over-month, in line with expectations. This uptick hints at resilient demand and suggests structurally lower rates could unlock further housing activity.

• Business Activity: Preliminary S&P Global Manufacturing and Services Purchasing Managers’ Indexes (PMIs) exceeded expectations and prior readings, signaling improving sentiment and underlying economic strength

• Consumer Sentiment: In contrast, the University of Michigan consumer sentiment index softened, highlighting concerns about household confidence. Given consumption’s critical role in gross domestic product (GDP), markets will monitor this trend.

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