The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update: Credit Concerns Surface Amid Earnings Season

October 20, 2025 

As the government shutdown continues to delay key economic data releases, investors are turning their attention to corporate earnings for insights into the health of the economy. The third quarter earnings season kicked off last week with results from major financial institutions—including JPMorgan Chase. While the bank’s numbers were generally solid, CEO Jamie Dimon raised eyebrows when he revealed a $170 million loss tied to a failed auto lender and used car dealer. He cautioned investors that such isolated incidents can often signal deeper, unseen issues—what he referred to as potential “cockroaches” in the financial system. 

That warning seemed prescient as two regional banks later reported losses and charge-offs tied to fraudulent activity by two companies, with damages reaching into the tens of millions. The news prompted renewed concern among investors about whether these might be early signs of broader credit stress. 

Some clients have even drawn comparisons to the 2008 financial crisis or last year’s regional banking turmoil. However, the broader data does not yet support the idea of a systemic credit event. Default rates in the high-yield (or “junk”) bond market remain below 5%—far lower than the double-digit levels seen during past crises. Many banks that reported earnings last week actually noted declining delinquencies and lower net charge-offs, both signs of credit stability. 

In the coming week, more regional banks will release their results, which may clarify whether these issues are truly isolated or part of a larger pattern. So far, the banks reporting losses include Zions and Western Alliance. 

From a portfolio standpoint, EP Wealth maintains a bias toward quality. On the equity side, portfolios emphasize larger, more established companies, with minimal exposure to banks—and none to regional banks specifically. On the fixed income side, portfolios hold no dedicated high-yield or junk bond exposure, reducing vulnerability if credit conditions deteriorate. 

Market data confirms that credit spreads—measured by the difference between high-yield bond yields and comparable U.S. Treasuries—rose slightly last week to around 3% (or 300 basis points). While this uptick reflects heightened caution, spreads remain well below levels seen during the Silicon Valley Bank collapse or the volatility earlier this year. 

In short, while investor nerves are understandable, current conditions suggest isolated risks rather than a systemic threat. With stocks hovering near all-time highs, markets are sensitive to downside surprises—but for now, the overall credit backdrop remains stable. 

If you have questions about how these developments may affect your portfolio, please reach out to your EP Wealth Advisor. 

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Video Summary: 

Last week, I talked about how in the midst of this government shutdown, we're really going to be looking at the types of information that give us a read about the economy. Because we're not receiving these traditional economic data points, these releases are being made as various parts of the government are shut down. 

Last week, we saw the third-quarter earnings season kickoff. We heard from Jamie Diamond. He's the CEO of JPMorgan & Chase. And although the numbers were good, he did talk about how the bank actually realized a $170 million loss, and this was previously known, but he provided details around this, and it was actually tied to a failed auto lender as well as a failed used car dealer. 

And he talked about the fact that where you often see these cockroaches, there's generally going to be more that you don't see quite yet, but you're going to see them down the road. And so, he did warn investors about this, that we are at a vulnerable point in terms of the credit backdrop here in this economy. 

That certainly raised some alarm among investors. We saw a little bit of a sell-off then, but we saw this continue on Thursday when we heard from a couple of regional banks, and they talked about how they were victims of fraud by two companies specifically, and they had losses and charge-offs on their balance sheet in the tens of millions. 

And so now we are seeing there is more and more talk about a potential credit event, and are there more cockroaches here that we don't see yet that are going to make their presence known here in the days and weeks to come? And so, not surprisingly, I did hear from one advisor here over the last couple of days. 

They actually passed along an email from a client of theirs and said, Hey, I remember this. This is how the credit crisis back in 2008 started. I remember hearing about similar things. This sounds awfully similar to what we saw a couple of years ago when we saw some trouble among the regional banks. 

And so they said, Is it, is this another one of those episodes? Do I need to worry? So I'll tell you what I told them so far. We do believe that these are more isolated events. We certainly are on the lookout, as I think other investors are as well, but we're looking at a couple of things here in the economy. 

You know, first, I would just highlight the fact that default rates in high-yield loans remain extremely low. They are actually below 5% in the junk bond market, and these actually hit double digits. During the financial crisis and again, a few years ago during COVID, we saw these jump again. 

And so we are not seeing this just yet. We are actually seeing that on the whole, the other banks that did report last week, they did actually say that they're seeing delinquencies fall, and they're actually reporting lower charge-offs and net charge-offs, simply meaning that they announced these net charge-offs. 

When they don't expect to collect on any of this debt or loans that they've provided. The fact that these are declining is a good thing. And so I will just highlight that this week we are scheduled to hear from a couple more regional banks, and so it'll be interesting to see if any of these other cockroaches do appear. 

We'll look to hear a little bit more information on these two companies that are accused of fraud and led to these losses at the two regional banks that I mentioned, and by name. Those are Zions and Western Alliance, and so on. I think that we are in this vulnerable period, but for now, we do believe that the broader credit backdrop is still okay. 

Now, for those who are concerned, I will just highlight the fact that within our portfolios, we've had a bias towards quality, and there are a few ways that you can express that. In the equity side, we have a bias or a preference for larger companies. In our individual stock portfolios, we actually don't have too much bank exposure, but the exposure that we do have is on the mega cap banks, those large money banks. 

We do not have any regional bank exposure. And I would just highlight that during last year's, excuse me, last week's events, it is those regional banks that actually saw the biggest hit. So we don't have any of that, exposure directly. In terms of our fixed income allocations, again, we have a bias towards quality. 

We do not have any dedicated exposure to high yield or junk bonds, and so if this does turn into something more systemic, more sinister, we are positioned appropriately within our portfolio. One thing that we are watching is that there's actually a visual here, and it shows the option-adjusted spread or the spread levels of the high-yield bond index versus a treasury. 

And so, really, what this is looking at is how much additional premium in terms of yield. Are investors demanding for buying lower-quality bonds over treasuries? And so this is about 3% or 300 basis points. We saw it; it jumped last week in response to the events. It is still well below. What investors were demanding following the Liberation Day in early April. 

And so fears have not hit that level yet in the credit market. And it is certainly well below what we saw when Silicon Valley Bank failed a couple of years ago. And, we really saw a lot of people talking about a potential systemic threat to these, to these major banks and lending institutions. 

So we are not quite there yet, although. The reason everyone is hypersensitive right now is because we know if stocks are at all-time highs, then some might argue we're priced for perfection. It just means that we are vulnerable to downside surprises, and these are the things that we're on the lookout for. 

We'll be keeping an eye on this here as the days roll on this week. So don't you worry, but if you do have any questions, please don't hesitate to reach out to your advisor