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- U.S. equity markets hit all-time highs in October, marking six consecutive months of gains.1
- The Federal Reserve made its second straight quarter-point rate cut and announced it will end its quantitative tightening program.2
- Trade tensions with China briefly intensified after restrictions on rare earth exports caused the biggest one-day market drop since April.2
- Inflation growth has been muted, supporting the Fed’s decision to cut rates.1
U.S. Stock and Bond Markets Deliver Solid Returns in October
U.S. markets extended their gains in October, despite headwinds from a prolonged government shutdown and renewed U.S.-China trade tensions. The S&P 500, Dow Industrial, Nasdaq Composite, and Russell 2000 indices each hit all-time highs, marking six straight months of gains. Notably, the S&P 500 is up 36% from its April low and has reached 36 new highs in 2025.1
Source: YCharts
Supported by the Federal Reserve’s (Fed’s) second consecutive rate cut, bond prices increased as yields declined, boosting portfolio returns.2 Elsewhere, gold briefly hit a record high before pulling back.2 The markets experienced intermittent volatility during the month due to geopolitical tensions, disappointing earnings from a few tech giants, and the government shutdown. Still, investors who stayed disciplined and focused on the long term were ultimately rewarded.
Source: MarketDesk
Government Remains Closed as Fed Cuts Rates Again
The ongoing government shutdown entered its 36th full day on November 5th, officially making it the longest in U.S. history.1 Despite the hardships caused by the closure, Congress remains deadlocked over spending and healthcare subsidies. Historically, the market impact of government shutdowns has been limited. Federal government employees make up only 1.8% of the total workforce.3 As a result, the shutdown has caused minimal disruptions in the market to date.
Meanwhile, economists struggled to assess the health of the U.S. economy during October amid delayed reports on monthly jobs, gross domestic product, and inflation. Despite disruptions in economic data reporting, the Federal Reserve (Fed) implemented a second consecutive quarter-point rate cut during its October meeting, bringing the federal funds rate to 3.75%–4.00%, its lowest level since 2022.2 In comments after the meeting, Fed Chair Powell framed the rate decision as a balancing act. For now, concerns about labor market weakness outweigh the risk of rising inflation. Citing unclear data and disagreement among policymakers, Powell also downplayed the possibility of a December rate cut.1 Markets anticipate another cut by January, with one or two more in 2026. This would likely be supportive for stock and bond prices, which generally benefit from falling rates.
Source: CME FedWatch
Along with the rate cut decision, the Fed also announced it will conclude its quantitative tightening program by December 1st.2 The end of the balance-sheet reduction program comes amid heightened liquidity strains across short-term funding markets. This move should increase available short-term liquidity at potentially lower rates.
Trade and Credit Concerns Drive Volatility
Volatility has been a common, but generally short-lived, presence throughout 2025, and October was no exception. During the month, China announced limits on rare earth exports, triggering the largest one-day equity market decline since April and reigniting tariff tensions with the United States.2 China controls approximately 70% of the global production and 90% of the processing of rare earth minerals, giving it significant leverage over trading partners who require the materials to power critical technologies.2 The U.S. threatened to retaliate with higher tariffs, but tensions eased late in the month when the leaders of both countries met and agreed to reduce tariffs by 10%.2
Credit markets also drew investor concern in October. After some regional banks highlighted losses in commercial real estate-linked loans amid fraud issues, earnings across the sector came under scrutiny.2 After a thorough review, analysts deemed the loan losses to be isolated incidents and the market stabilized quickly.
Investor Optimism Prevails
October once again showed investors how fleeting headlines can temporarily rattle markets until fundamentals reassert themselves. Despite government gridlock in Washington and ongoing policy uncertainty, markets remain resilient.
Against this backdrop, and buoyed by two interest rate cuts and continued solid corporate earnings, investors are approaching year-end with cautious optimism. Attractive investment opportunities today include high-quality stocks offering earnings visibility and appealing yields in fixed income. For investors whose portfolios remain concentrated in the United States, international markets continue to perform well and offer opportunities for diversification. Additionally, artificial intelligence remains a powerful driver of growth globally, with substantial investments being made in the technology itself and the supporting infrastructure.
There are potential risks ahead. Due to strong stock performance this year, valuations are stretched today. The forward price-to-earnings ratio for the S&P 500 Index stands at 23x, significantly above the five-year average of 20x.5 As a result, returns may moderate as we head into 2026. Additionally, the U.S. employment picture has clearly softened.2 This trend is likely to continue in the near future and could impact economic growth.
As always, it is crucial to align your portfolio with your long-term goals and avoid reactionary shifts based on short-term events. Staying disciplined and diversified, taking advantage of opportunities to rebalance when market performance causes imbalances, and focusing on quality remain wise strategies.
Source: YCharts
1 Bloomberg
2 Reuters
3 FRED
4 Forbes
5 FactSet
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Dow Jones Industrial Average® (Dow Jones or DJIA) is a stock market index representing the price weighted average of 30 large, publicly owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The component stocks are accorded relative importance based on the prices, unlike other indices which weight by market capitalization. The companies in the DJIA are leaders in their industries, and their stocks are widely held by individuals and institutional investors.
The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond) is a market capitalization weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most US traded investment grade bonds are represented. Municipal bonds and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, mortgage-backed bonds, corporate bonds, and a small number of foreign bonds traded in the US. CSP2025295
