US Strategy Weekly: Reasons to be Bullish

According to a Reuters/Ipsos poll, President Donald Trump’s approval rating is down 5% from when he took over the White House in January. Yet even though Americans blame Republican lawmakers (50%) more than Democrats (43%) for the government shutdown, Trump’s approval rating is up 2% to 42% from prior to the shutdown. For perspective, the President’s rating has vacillated between 40% and 44% since early April.

It should not be a surprise that Trump’s approval rating has gone up, not down, during the shutdown. Except for the roughly 3 million people paid by the federal government (2.9 million civilian employees and 1.3 million active-duty military personnel) most people have been unaffected by the shutdown. And while most investors may not be aware of this, the President only has control over foreign affairs and American defense and has little to no power over budgets or shutdowns.

President Trump does have some influence, but most of it comes from the slim Republican majority in Congress. However, a slim majority is insufficient to pass a real budget or to prevent a federal government shutdown. Most legislation, including regular appropriations bills, requires a simple majority in the House, but 60 votes in the Senate to overcome a filibuster and pass. The Republican party currently holds 53 seats in the Senate and therefore cannot prevent a shutdown.

Where President Trump is using his influence is in global affairs and trying to find peace in the Middle East and in Europe. Yet while a Middle East peace accord was signed in Egypt on October 13, 2025, it is becoming increasingly clear that Hamas has no real desire for reconciliation, and Middle East peace seems tenuous. In Europe, Russian President Putin appears unwilling to find a solution to end the war with Ukraine and the planned Putin-Trump summit is now on hold.

Nevertheless, there are several reasons to be bullish on equities. The WTI crude oil future (CLc1 – $57.56) is below the psychological $60 level for the first time since May of this year. The oil future has not remained below $60 consistently since February 2021, i.e., during the pandemic. We believe the price of oil is significant for the inflation trend and while it may not show up in the CPI data expected later this week, it will be a positive factor in coming months. In line with lower oil and gasoline prices, it is also significant that the 10-year Treasury bond yield is below 4% for the first time in over twelve months. Lower inflation and lower interest rates give a positive boost to economic activity, and this is apt to show up in coming months and quarters.

In addition, third quarter earnings season is in full force, and the results continue to surprise to the upside. Most notable was the report from General Motors (GM – $66.62), where quarterly adjusted earnings per share dropped to $2.80, but easily beat analysts’ expectations of $2.31. More importantly, the company reduced its tariff expectations and raised its annual profit forecast. According to LSEG research, of the 58 companies in the S&P 500 that have reported earnings to date, 86.2% have reported earnings above analyst estimates. This compares to a long-term average of 67.2% and prior four quarter average of 76.5%. In short, this could be another quarter of positive earnings surprises. As we have often noted, analysts have been too pessimistic about the economy, tariffs, and earnings. And although PE multiples are rich, the forward earnings yield of 4.5% and dividend yield of 1.2% compare well to a 10-year Treasury bond yield of 3.98%. Plus, the 12-month sum of operating earnings shows a gain of 10.5% YOY, better than the 75-year average of 8.1% YOY. See page 7.

Despite a lack of normal economic releases there were good reports this week. In October, homebuilder confidence increased 5 points to 37, according to the National Association of Home Builders’ Housing Market Index. All components of the index were higher, with current sales rising four points to 38; next six month sales rose nine points to 54; and current traffic increased four points to 21. The fed funds rate cut in October, coupled with the dovish statements by Fed Chairman Jerome Powell, appears to have lifted the spirits of homebuilders. As we have already noted, interest rates have been declining, and this is having an immediate impact on the housing market. September Inflation data will be reported by the BLS at the end of the week and good news could also help sentiment and move stock prices higher. See page 3.

The federal government’s fiscal year 2025 concluded on September 30, and Treasury data indicates that the month of September closed with a $198 billion surplus. Nevertheless, the fiscal year ended with a deficit of $1.775 trillion, down 2.4% from the $1.817 trillion in fiscal year 2024; but still high. Even so, it is worth noting that the Trump administration began four months into the 2025 fiscal year with the deficit already at $840 billion. This means the 2025 deficit was running at $210 billion per month compared to the last eight months of the fiscal year when deficits averaged $117 billion per month. In short, 47% of the fiscal 2025 deficit materialized in the first four months of the fiscal year. This suggests that progress is being made, albeit slowly. However, most economists are only looking at CBO estimates for future deficits which imply that gross federal deficits will grow at a steady rate in the future. We doubt this will prove to be accurate, which means most economists remain too bearish. See page 4.

Bending the curve on deficits is critical since the trend in post-pandemic federal debt is not sustainable over the long term. Debt issuance was $1.96 trillion in fiscal 2024 and $1.973 trillion in fiscal 2025. These levels of debt issuance require major increases in demand for US Treasuries to offset supply. Gross federal debt was $37.2 trillion at the end of September, according to the CBO, and 69% was held by the public. Only 12% was held by the Federal Reserve, down from 19% in 2021 and the remaining 19% was held by federal government accounts. Pressure on the US Treasury market has declined since the Fed indicated it may have reached the end of its quantitative tightening cycle. This helps the supply/demand balance. See page 5.

During the Covid pandemic, and with the mandated shutdown of businesses, gross federal debt surged $4.2 trillion as the federal government gave financial assistance to workers and shuttered businesses. However, gross debt continued to increase over $2 trillion per year in 2022, 2023 and 2024, more than the annual increases seen during the recession years of 2008-2010. This spending precedent, even during an expansion, will be difficult to reverse since many Americans are now accustomed to government support. Since discretionary spending has already been reduced to 6.3% of GDP from 9.1% in 2010, this administration has the difficult job of trying to reduce mandatory spending to balance the budget. Hopefully, a program to reduce fraud and waste in programmatic spending can succeed. See page 6. The NYSE cumulative advance/decline line made a new high on October 21, 2025, which is a bullish confirmation of the recent highs. See page 10. Notably, last week’s AAII survey showed bullishness dropped 12.2% to 33.7% and bearishness jumped 10.5% to 46.1%. Bullishness is below average, and bearishness is above average this week indicating no exuberance on the part of the public. This is positive. See page 11. We expect volatility will continue but would be a buyer of any weakness.

Gail Dudack

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