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November 2, 2025
Candace Browning, Head of BofA Global Research
The clocks may fall back, but earnings momentum hasn’t. This week, we review one of the strongest 3Q seasons in recent memory, look ahead to positive seasonal trends, highlight how the pendulum is swinging in private credit and watch the NFIP’s (National Flood Insurance Program) race to reprice risk.
With 75% of 3Q earnings behind us, the S&P 500 is delivering a 6% beat, powered by Tech heavyweights and reinforced by the strongest breadth of earnings beats since 2021.
Hyperscalers reaffirmed their commitment to the AI arms race, raising 2025 guidance, highlighting increased spending in 2026, and flagging capacity constraints. Consumer trends, meanwhile, haven’t been encouraging. Discretionary earnings are on pace to fall 2% year over year in 3Q, while Staples are tracking -1%. Guidance and revisions remain firm, with 1.9x more positive EPS (earnings per share) guides and a 1.2x upward-to-downward ratio in 2026 estimates, underscoring one of the strongest sentiment backdrops in years.
November historically brings tailwinds for stocks and bonds, with equities rising and yields easing.
Across global indices, nine of ten typically finish the month higher, led by the Russell 2000 (+2.6%) and Nasdaq 100 (+2.5%). When the S&P 500 ends October in positive territory, November-December gains follow nearly 80% of time, jumping to 92% in the first year of a U.S. presidential cycle. Small caps, Discretionary, Healthcare and Industrials lead sector performance, while Utilities lag. Bonds also tend to firm with the 2s10s flattening ~5 bps (basis points) and long yields, particularly in the U.S. and Italy, drifting lower. In FX, USD strengthens relative to LatAm pairs — especially against the Brazilian real — while commodities see oil weaken (-3%) and metals firm modestly. Head of FICC & Equity Technical Strategy Paul Ciana remarks wittingly that buying the S&P on Halloween or Christmas Eve has historically “paid for a New Year’s Eve celebration”.
Credit investors seeking validation that recent issues are idiosyncratic have found it over the past few weeks, thanks to strong earnings from large caps and benign non-performing loans (NPLs) at banks.
However, Head of U.S. Credit Strategy Neha Khoda, in her 2026 outlook for private credit (PC), flags some risks ahead. She anticipates spreads to widen to 540bps from today’s record lows of 500bps. Neha also expects private and public credit returns to converge next year, with private equity extending its lead as it benefits most from rate cuts. Allocations could shift away from PC due to a narrower return premium compared to other options, and she expects a 15% decline in issuance given lower fundraising and increasing scrutiny of asset health. AI is in the midst of a Goldilocks phase, but the technology could eventually lead to disruption for corporates and labor markets, leading to higher dispersion within the asset, and leading the Fed to start cutting for the “wrong” reasons.
The National Flood Insurance Program (NFIP) has run $25bn in cumulative losses since inception and expects an additional $2-3bn over the next five years.
Senior U.S. Insurance Analyst Josh Shanker remarks that chronic underpricing — especially in coastal areas — has effectively supported property values by masking true risk costs. NFIP premiums remain well below actuarially sound levels and full repricing won’t be reached until 2037, leaving a long window for private insurers to cherry-pick profitable, low-risk policies and deepen NFIP’s losses. While NFIP’s premium pool grew by 12% across 2020-2024, the average state saw a decline, and loss ratios remain extreme — North Dakota’s 1997-2024 ratio stands at 240%. Just 36 counties, the majority of which are on the ocean, generate half of NFIP claims, underscoring geographic concentration. Taxpayers ultimately subsidize higher-risk coastal homeowners, while under-insured inland regions face rising surprise flood risks, from Texas camp floods to New York subway inundation. Josh argues that owning flood coverage in lower-risk areas could prove prudent, particularly if priced appropriately.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
Global Letter: The end of the cutting season
It seems this is it for the 2025 easing season in developed economies. The Fed and the Bank of Canada cut 25bp but signaled a likely pause until next year, in line with our view. The ECB didn't bend on the dovish side and now we expect the next cut in February. Finally, for this week, we expect the Bank of England to remain on hold and we don't forecast cuts until March. In Australia, we expect RBA to remain on hold for an extended period of time.
United States: Tariffs: passing the buck to the consumer
We think there is overwhelming evidence that tariffs have pushed inflation higher for consumers. In total, we estimate tariffs account for about 30-50bp of core PCE (personal consumption expenditure) inflation which we estimate to be 50-70% of the total tariff cost to date. This suggests tariffs can continue to put upward pressure on inflation in coming months, especially since the effective tariff rate should climb further.
Euro area: ECB review — later it is
ECB meeting was a placeholder but it convinced us to change our ECB call. We now expect the ECB to cut rates by 25bp in March 2026. We no longer expect the ECB to bring rates back to 2% in 2027.
China: Xi-Trump meeting
Developments from Xi-Trump meeting were modestly better than expected, which could support exports in the near term. There was an immediate fentanyl tariffs cut and a 1-yr suspension of reciprocal tariffs, export controls and maritime fees.
