by Alex Harding, CFA
Vice President
Equity Research and Portfolio Management
As November begins, markets find themselves navigating unprecedented territory. The government shutdown has now stretched to 38 days, the longest in U.S. history. While Washington remains gridlocked over healthcare subsidies and spending priorities, the Federal Reserve is operating in the dark at a moment when clarity is paramount. With the Bureau of Labor Statistics unable to collect or publish employment data and inflation reports, the Fed is forced to make monetary policy decisions in what Chair Jerome Powell aptly described last week as "driving in the fog." Without the October jobs report, policymakers are increasingly reliant on imperfect private-sector proxies as they contemplate their next moves. This informational void adds a layer of complexity to an already challenging environment, raising the specter that the Fed may opt to pause rate cuts in December simply because they cannot see the road ahead.
Third Quarter Earnings Results
Against this backdrop, corporate America delivered a third quarter that has thus far exceeded expectations, at least on paper. According to FactSet's latest Earnings Insight, 83% of S&P 500 companies have reported beating earnings estimates, the highest percentage since the second quarter of 2021. The blended earnings growth rate for the quarter is now 12.5%, marking the fourth consecutive quarter of double-digit growth and exceeding the 7.9% expectation from September 30, 2025. Sector leadership has come from familiar places: Information Technology posted 26.5% earnings growth, Financials delivered 20.8% and even Consumer Discretionary turned positive at 8.0% after initially projecting a decline. Yet beneath these impressive figures lies a troubling disconnect. Companies beating estimates saw their stocks rise just 0.3% on average, below the five-year average of 0.9%. Those that missed expectations were punished with an average decline of 6.4%, more than double the historical norm. The market's message is clear: with the S&P 500 up 15% heading into earnings season and the current environment clouded by shutdown uncertainty, tariff threats and conflicting economic signals, it appears investors are discounting good news and severely penalizing disappointments.
The Restaurant Industry is Hungry
Nowhere is this divided economy more evident than in the recent earnings reports from the restaurant industry. Chipotle Mexican Grill, long a bellwether for the fast-casual segment, reported flat same-store sales growth of just 0.3% for the third quarter, a decline from 6% growth in the prior-year quarter. CEO Scott Boatwright characterized the environment as "challenging," specifically pointing to a weakening frequency among consumers aged 25 to 35 who are grappling with inflation, elevated unemployment and the resumption of student loan payments. The company has now cut its full-year comparable sales forecast three times, with management signaling that younger, lower- and middle-income diners are pulling back dramatically.
CAVA, Chipotle's Mediterranean-focused peer, painted a similar picture, reporting same-store sales growth of just 1.9% – well below the 2.8% expectation – and cutting its full-year guidance for the second consecutive quarter. Both chains are experiencing what management described as consumers becoming "more deliberate" about dining occasions, with lower-income cohorts either trading down or opting to cook at home entirely.
Zooming Out
In contrast, on JPMorgan Chase's third-quarter earnings call, CFO Jeremy Barnum emphasized that "consumers and small businesses remain resilient based on our data," noting that credit metrics, including early-stage delinquencies, “remain stable and slightly better than expected.” The bank reported consumer spending remained "robust" throughout the quarter, with CEO Jamie Dimon affirming that "customers are resilient” amid elevated economic uncertainty. Barnum attributed the bank's favorable delinquency trends to the "continued resilience of the consumer." However, he acknowledged that the personal savings rate has declined slightly as consumers maintain strong spending levels while income growth has moderated. Similarly, Visa reported a 12% revenue increase in its fiscal fourth quarter, with CFO Chris Suh highlighting "broad-based strength" across retail, services, merchandise, travel and fuel. The juxtaposition is striking: while budget-friendly restaurant chains serving price-sensitive consumers see traffic evaporating, the aggregate data from financial institutions suggests resilient spending among more affluent demographics.
K-Shaped Economy
This disconnect underscores a fundamental reality of the current economy: it is not weakening uniformly but instead splitting along income and generational lines, forming a K-shape, unlike other letter-shaped economic paths such as L-shaped, V-shaped, etc. The top 20% of earners, buoyed by soaring stock portfolios and rising home values, continue to spend freely. At the same time, younger and lower-income Americans face a convergence of wage stagnation, debt burdens and inflation, forcing difficult trade-offs. As we move through the fourth quarter with the government shutdown unresolved and the Fed flying blind, this K-shaped trajectory may become even more pronounced, creating a temporary soft patch in the government’s contribution to economic growth and continued market volatility (in both directions) that we’ve been experiencing in the final quarter of the year.
Takeaways for the Week:
The government shutdown is now the longest in U.S. history, complicating the Fed’s decision to lower interest rates again this year
In direct contrast to the comments from the restaurant industry, the National Retail Federation predicts retail sales will eclipse $1 trillion dollars for the first time ever this holiday season, another sign of the ongoing bifurcation within the U.S. economy
After three weeks of gains in the stock market, this week’s selloff in Technology stocks caused the S&P 500 to drop more than 1.5%