This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speakers, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.

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John

Hello and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings at Manulife John Hancock Investments. Today is October 20th, 2025, and I've invited back Matt Miskin and Emily Roland, our Co-Chief Investment Strategists here at Manulife John Hancock Investments, to talk about what's happening in economies and markets around the world. Matt, Emily, welcome.

Emily

Hey John.

Matt

Thanks for having us.

John

You got it. Hey, Emily, I'm going to jump right in with you. I want to talk about the economy. How are the numbers coming in so far?

Emily

Yeah. So you know that Facebook relationship status button that says it's complicated? That's basically the way that we're thinking about the economic data right now. It's really all over the place. You just look back to recent data last week, the NFIB small business survey showed a deterioration in sentiment on that front. But then you look at some of the manufacturing data closely. One that we watch is the Empire Manufacturing Index, which beat, but then its brother, the Philly Manufacturing Index, fell. We look at things like the Fed Beige Book that showed mixed messages across consumers and businesses. So we're seeing really some chop.

It's really difficult to get a read right now given the government shutdown and the lack of economic data that we're getting.

We've been using some more timely or kind of alternative sources of labor market data. And that's obviously really important to us in order to gauge the health of the economy today. So things like Indeed and a piece of data from LinkUp. And those are both showing that job openings are decelerating. So when you put it all together, we are seeing some weakness in the macro picture—not certainly falling off a cliff, but continuing to see a slow deceleration right now in the U.S. economy, it's happening globally as well. Probably, you know—or not probably, but we are holding up the best in the United States on a relative basis. Things like the German ZEW Sentiment Index, industrial production in Europe, all falling. But it certainly hasn't been reflected in the markets, and I know that's something that we'll get to here as we move through the podcast.

John

Yeah, thanks Emily. Hey, Matt, Emily has her economic Facebook status as complicated. I don't think you're a big Facebook person, but maybe on LinkedIn, how would you have the earnings situation so far?

Matt

Well, earnings, you'd be the most popular person on LinkedIn right now. It is…earnings are just coming in awesome. So the estimates at the beginning of the quarter are about 7%. We're coming in more like 9% to 10%, 85% beat rate. And financials just came in last week with a string of beats and they came in with earnings growth of about 20% reported thus far. So it is, you know, stocks follow profits in our view. I know there's an old saying that it's the economy, stupid. I grew up in the 90s. That was something that really I heard a lot of. And now it's the earnings. We inserted a much nicer word here at the Matt Miskin household.

But it's about earnings and even though stocks are heavily, you know, richly valued, we're not looking for much more multiple expansion. The dividend yield is low, earnings growth is the driver of returns and we're seeing unlocking of stocks—actually that were having great earnings, that performance wasn't even that great this year. A lot of times it's been the stocks that haven't had good earnings this year that have done better, but there's been a bit more of a shift to recognizing these good companies that are growing earnings and that's where we're seeing the best opportunities today.

John

All right, that's great. We've been talking about can earnings keep up with the multiple, and so far that's been the case.

Hey, I want to dig in a little bit deeper, Matt, specifically around the bank sector. Bank earnings have been strong like we've seen across a lot of the parts of the market, but there's been some volatility in the sector. Help us understand what's happening there.

Matt

Yeah, so last week in some of the reporting earnings, there was a bank that did have a loan that, you know, basically they weren't paying…they weren’t able to get the money back. And that bad loan write-off did send through a bit of volatility across the market. Otherwise, on the whole, we're seeing nearly 20% earnings growth in mid to small-cap banks, and banks in general are seeing great earnings growth. So it was, you know, one of these things where overall the businesses are good, the wealth management side’s good, investment banking is getting better, the yield curve is steepening year over year, but the knock is, well, there are companies or consumers that are, you know, weakening under the hood in terms of loans, and they had to kind of put across some, you know, basically write-offs or charges to represent that.

Overall, though, we're not seeing a liquidity event in markets. We keep looking at high-yield spreads. So if banks are having issues with loans, you look to the biggest lower-quality loan market to see: is there a liquidity issue there? High-yield spreads, which is in essence the measurement of a jump on yield relative to Treasury bond yield to say, 'OK, how much am I getting compensated for that lower credit quality I'm getting access to?'—that spread is still like 2.8%, 280 basis points. That's near off the lowest in history. I mean, the lowest ever is like 2.3% in 2007.

So still showing a lot of liquidity on the front of the high-yield space—and then the Fed is likely to cut rates. What we saw last week too, the two-year yield dipped beneath support. So 3.5% was support. The two-year yield is starting to sniff out that the Fed would likely intervene, coverage through what they had to do if they needed to support the bank system. Banks have already rallied coming into this week off of some of the weakness last week. We're keeping an eye on it, but in general, we're seeing ample liquidity in the high-yield market and a Fed that could very well step in if they needed to.

John

Thanks, Matt. Emily, I want to dig into a little bit more. We hear comments about there might be cockroaches in the hotel, and if you see one, you see many. How has the broader bond market reacted to this situation and credit? And when you go back to your comments about economic, you know, inconsistency, if you will, how does that impact things? And where do you think the Fed goes from here?

Emily

Yeah, John. So, you know, the most important thing we're watching to see if there's something more sinister going on here. Are high-yield bond spreads, Matt mentioned that, you know, sitting well below 3%. That is the credit market telling you that everything is fine for now and that this does appear to be more of an idiosyncratic situation.

You know, we look at the yield curve as well, and what we're seeing right now is that the 10-year Treasury yield is at a really important level, just hovering right around 4%, having broken below 4%, chopping around here. The two-year Treasury yield has broken below 3.5%. And we're talking about '90s references—there was another one, like, remember, 'talk to the hand.' So if you think about, you know, if you want to know what Fed policy is going to be from here, talk to the two-year Treasury yield. And right now, it's telling you that the Fed may need to cut a bit more than markets had anticipated prior to some of these developments taking place.

You know, of course, there’s other factors that are impacting the yield on bonds—certainly some of the slower economic growth data, some concerns around geopolitical risk—but we're seeing some pretty significant moves there. And in fact, we think that's right. We think that the Fed may be underestimating a couple of things. One is the softness in the labor market. Again, it's tough to get a read on this right now because we're not getting things like the non-farm payrolls report, but some of that more timely data that we're watching is indicating that cracks are widening. And, you know, if you do look at the non-farm payroll data that we have gotten, there was a negative print over the course of the summer—that rarely happens outside of recessions.

And then we think that inflation is going to be slowing a lot more than some of the official data suggest as well. So we look really closely at the services component of inflation—shelter or housing represents 35% of that. And if you look at, again, the real-time measures of housing, we've actually seen five months in a row of home prices nationally falling. That's per the Case-Shiller National Home Price Index. We're seeing supply coming online—it's up about 17% year over year, albeit off of low levels, but supply is picking up at the same time that demand is slowing. Unaffordability is still a major issue, even with rates coming down a bit. We're seeing folks that are concerned about their jobs, fewer job openings—that's resulting in a bit of a lack of confidence on the demand side as well.

So, big changes on the inflation front as it relates to housing that are not being picked up by the BLS, just kind of given the way that they conduct their surveys on shelter. So I think that's something that's important that's leading us to expect the Fed to cut a bit more. Right now, the bond market's pricing in two cuts for this year, a total of three for next year—that's up from two. We think it may be, you know, something like four or five cuts into 2026.

John

Okay, all right, really helpful. I feel like you and Matt want me to have a 70s throwback podcast at some point in the future. So keep dropping them. I love it.

All right, hey, Matt, I want to broaden the conversation. You and Emily are out talking with advisors and other investors all the time. What other topics are coming up in the conversations that you're having?

Matt

Just really, the move, you know, the last six months has been one of the tremendous bull market rallies in history, frankly. And you know, is it sustainable? And just also, I mean, there are markets all over the world that are going up parabolically right now. And I think it's rightfully difficult as an asset allocator to look at equities and, you know, just think of it as, hey, you know, I mean, we're just continuing to add to this allocation when valuations are much richer. The earnings growth is good, and you know, that's what we're focused on. But this rally is something usually you only see out of a recession—only we didn’t have a recession. And so, you know, it’s like, how do I keep allocating capital for appreciation for my clients, but doing so in a thoughtful way?

And we’ve talked about alternatives like infrastructure-related equities, multi-alternative strategies. We’ve also talked about using mid-caps to diversify your equity allocation because U.S. large-cap is really concentrated in 10 stocks right now—the most concentrated in history. And so we’re trying to diversify away from that AI exposure that’s now so dominant in global equities using mid-cap, mid-cap value. And you know, on the international side, it’s hard, I think, also after such a massive run, but we are seeing more of a growth tilt kick into gear for us because the earnings growth in Asia is really starting to do better than Europe.

And then on the bond side, you’re still sitting here saying, look, you can allocate and get nice income for your clients where you can liability match, meaning you can use this income as spending for the clients for years to come, and let’s take advantage of that while we have it. Because the other thing that investors are grappling with is, if Emily is right and our view is right, that the short end of the curve, the Fed funds rate, goes down, money market and cash interest is going to be cut down significantly, and it’s going to make it harder to meet those distributions that you had the years before. So we’re trying to manage that. But really, it’s being risk-conscious in a world where it is so risk-on and such a momentum freight train—how do we thoughtfully allocate capital today?

John

Okay, I like that. Risk aware and a risk-on environment. Hey Emily, any final thoughts that you'd want to share with the audience before we go?

Emily

Yeah, I think just building on what Matt said, you know, you wake up every morning and there's just this technical, momentum-driven, unprofitable companies, meme stocks, crypto. You know, it's just like it's unstoppable. And for us, it's really about drafting.

You know, it's always a risk when I try a sports analogy, this one's around race cars and you know, you think about kind of not being that lead car, but being right behind. Meaning, you know, we're fully invested, we're just not chasing risk here. We're looking for higher quality stocks. We don't want to, you know, sort of risk a crash or an accident by loading up on too much beta here. You know, you look across markets, not only in the United States, but also there's Europe. There's areas within Europe that are up 30% on no earnings growth. So we just want to be careful there. We're owning high-quality companies in the United States. We're looking at not overpaying for earnings growth. We want to own companies with good return on equity, great balance sheets, lots of cash. It's sectors like tech and com services, sprinkled in with a little industrials and utilities that are all seeing positive earnings trends and higher quality balance sheets in companies as a whole. So drafting instead of trying to pull away, I think, from the rest of the crowd is the way we'd be thinking about portfolio positioning.

John

Excellent stuff as always from both you, Matt and Emily. My only complaint is you missed an awesome Days of Thunder reference.

Emily

I know Matt would have gotten that.

John

I would have gotten it. It would have been awesome. It would have been awesome. But you know what? Maybe we save that for next time. Hey folks…

Matt

Sounds good.

John

Yep. If you want to hear more, as always, please subscribe to Portfolio Intelligence on iTunes or our website or wherever you find your favorite podcast. And also check out our website for viewpoints on investing, great business-building ideas, and much, much more. As always, thanks for listening.

John

This podcast is being brought to you by John Hancock Investment Management Distributors, LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There's no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.

Beta measures the sensitivity of the Fund to its benchmark. The beta of the market as represented by the benchmark is 1. A fund with a beta of 1.1 is expected to have 10% more volatility than the market.