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: Fed Decision Week and Tech Earnings in Focus

October 27, 2025 

Another Federal Reserve meeting is here. The Federal Open Market Committee convenes Tuesday and Wednesday, and markets broadly expect another 25-basis-point interest rate cut when the decision is announced mid-week. Last Friday’s CPI inflation report, delayed a week by the recent government shutdown, came in slightly softer than expected. That gave the Fed the green light it needed to proceed with this week’s rate cut. However, decisions will likely become more difficult from here. Inflation remains persistent—still hovering around 3% year-over-year, depending on the measure—above the Fed’s 2% target. Diverging opinions within the Fed suggest the path forward after this week’s meeting may be less certain as policymakers balance progress on inflation with broader economic risks. 

Earnings Season: Strong Results So Far 

We’re midway through corporate earnings season, and results have been encouraging. More than 85% of companies that have reported so far have beaten earnings expectations, and roughly 82% have also exceeded sales forecasts. That’s significant—earnings can be managed through cost controls, but sales strength signals resilient demand and healthy operations despite a challenging environment. This week will be especially pivotal, with about half of the S&P 500 reporting results. The spotlight will be on five major names—Microsoft, Alphabet, Meta, Amazon, and Apple—which together make up roughly 25% of the S&P 500’s total market value. Their results could meaningfully influence the market’s tone heading into November. 

AI Spending and Market Expectations 

Much of the market’s recent momentum has centered on mega-cap technology companies tied to artificial intelligence (AI). Over the past year, these firms have poured hundreds of billions of dollars into AI infrastructure and development. In some cases, annual investment has already exceeded the revenue those initiatives currently generate. Investors have so far been patient, betting that this spending will pay off over time. But as capital expenditures continue to climb, Wall Street will be looking for signs of when those investments begin translating into profits. Earnings growth among these tech leaders remains strong but is slowing: two years ago, annual growth topped 50% year-over-year; last quarter, it was in the mid-20s; this quarter, consensus expects around 17%. The slowdown partly reflects tougher year-over-year comparisons, but also the sheer scale of ongoing AI investment that weighs on short-term margins. 

Diversification Still Matters 

While the performance of a few large technology names continues to drive much of the market narrative, it’s important not to lose sight of diversification. At EP Wealth, we maintain exposure to leading AI-related companies where appropriate, but we also ensure our portfolios remain broadly diversified across sectors and asset classes. History has shown that maintaining balance—not concentration—is the best way to capture opportunity while managing risk. As Adam notes, “Diversification really is the only free lunch in investing.” 

Looking Ahead 

With both a Fed rate decision and heavy tech earnings on deck, this week could set the tone for markets heading into year-end. We’ll continue to monitor developments closely and keep you informed. If you have questions about your portfolio or the implications of these trends, please reach out to your EP Wealth advisor. 

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Video Summary: 

Another Fed Week is upon us. The Federal Open Market Committee is meeting on Tuesday and Wednesday of this week, and they are widely expected to deliver another interest rate cut of 25 basis points when they come outta their meeting on Wednesday. We received the inflation report and the CPI, uh, last Friday.

This came a week later than scheduled because of the government shutdown. Yeah, but this inflation, it did show that, that the numbers on a month over month basis came in a little softer than expected. Uh, and it really gave the, the fed the green light that they needed to proceed with this rate cut this week.

Now the decision probably won't be as easy in the upcoming meetings. The next one is in mid-December, and the reason for that is that this inflation data last week also showed us that inflation. Remains a little bit of an issue, and I think that opinions vary within the Fed, but we are looking at inflation data that is still around 3%.

There's a number of ways you can measure it, but most of the data is still at or above 3% on a year over year basis, and that is compared to the fed's target of 2%.

Now this is going to be a really interesting week, not just because of the fed meeting, but because we are in the middle of earning season so far, the earning season is going very well. We're looking at over 85% of companies that so far, uh, have reported and they've announced earnings. They came in better than expectations.

At the same time, we're seeing about 82% of companies that have reported have reported sales that came in ahead of expectations. I think that's really important because sure, companies can, they can change their operations, they can cut costs, they can manage their earnings numbers to get over the hurdle and, and the, the, uh, the estimates that analysts have on the street.

But sales tell us that their operations are still pretty good and, and that they're still able to sell in this tricky environment. So we are happy with what we see so far, but this is a big week for earnings. About 50% of the s and p 500 is reporting earnings this week, and among that 50% there, there's really five big ones.

There's Microsoft Alphabet, meta. Amazon and Apple, that report on Wednesday and Thursday of this week. That group collectively accounts for about 25% of the s and p 500. So in a way this is a make or break moment for them and for the broader, uh, s and p 500, just because we know that so much has been riding on the performance of a handful of mega cap tech stocks that are associated with artificial intelligence.

So what we've seen is in recent quarters is a lot of these companies have been investing quite heavily in the build out of artificial intelligence. We've actually seen the numbers move into the hundreds of billions in terms of what they're spending on an annual basis. In most cases, what they're spending actually eclipses the revenues that they're receiving, uh, as part of, of what they're doing in artificial intelligence.

So they're really putting a lot of investment in here for the time being. Investors are, are giving them the benefit of the doubt that they will see the results from all of this investment. So time will tell, but this is really critical because we are looking at numbers at, at stocks that have been bid up and so.

What we are going to be on the lookout for, and I think what Wall Street's going to be on the lookout for is what they say with respect to the the future investment in artificial intelligence. And are they seeing some benefit yet, or when are they going to start seeing the benefit? Eventually, investors are going to demand it.

The question is when, and so we are really interested in this to see what they report. I will say that in terms of their contribution to earnings growth and, and the earnings growth that they're seeing on a year over year basis, these numbers have been trending down. It was just a couple years ago. On an annual basis, they were seeing about 50% earnings growth year over year, and just last quarter it was around mid twenties percent.

It's still expected to be pretty high this quarter, about 17% on a year over year basis. But that number is trending down and in large part. I'd say for a couple of reasons. One, because the comps are, are so hard on a year over year basis. But a another reason, uh, driving this move lower in terms of earnings growth is because they are investing so heavily.

So I do wanna point that out. There's a lot riding on this earnings season, especially for them. But you know, if we just take a step back, I think it's so important to acknowledge this. And it's one of the reasons that we are diversified, uh, diversified across our portfolios. You know, you can. You can have conviction and confidence and play this artificial intelligence theme, but I think it's important to be mindful of your exposure.

And we have a number of these names across our portfolios, but we are still diversified. And I think that's the name of the game here. We are diversified across our portfolios. We are looking at earnings that is, uh, is moving lower on a year over year basis for these handful of stocks. We are looking at, uh, a bar that is, uh, increasingly high because of the capital investment that's going into the artificial intelligence theme, and we're mindful that there's a lot of good companies out there that aren't affiliated with tech and they will be.

The eventual winners are beneficiaries of artificial in tech. Uh, artificial intelligence, if it do, does move forward. So we are diversified across our portfolios. We, we remind our clients that you can. You can play these themes, but don't lose sight of the fact that you, that diversification really is the only free lunch when it comes to investing.

And so that's what we're doing here. But I'll leave it there for right now. I'll look forward to catching up with you next week. As always, if you have any questions, please don't hesitate to reach out to your financial advisor.