Even with the government shutdown casting a shadow over Washington D.C., equity markets have continued their upward march, fueled by a trifecta of positive surprises: cooler-than-expected inflation, another rate cut by the Federal Reserve (Fed) and easing trade tensions.
- Year-over-year headline inflation ticked up slightly in September while core inflation, which excludes volatile energy and food prices, ticked downward. Inflation remains above the target rate but on net this was a better result than the market expected.
- In light of better-than-expected inflation numbers, the Federal Reserve cut interest rates by another quarter point in October, bringing the target federal funds rate to 3.75-4.00%. The cut is intended to provide relief to a weakening labor market.
- US-China trade tensions briefly rattled the market ahead of President Donald Trump’s trip to Asia, but rebounded quickly, and the meeting between Trump and President Xi Jinping reduced the temperature of the trade dispute.
Mega-cap tech stocks, flying high on investors’ enthusiasm for AI and AI-related capital expenditures, continue to dominate. We will get into the details after we look at the numbers year-to-date.
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*Performance reflects index values as of market close on October 31, 2025.
Economy dimming, but with some bright spots
While the economy remains strong, a broad array of indicators suggests it is slowing.
- The labor market remains within the range conventionally considered “full employment,” but “job creation is pretty close to zero,” said Federal Reserve Chair Jerome Powell after the October meeting of the Federal Open Market Committee.
- Manufacturing sector indicators in September were stronger than expected, but the sector remains in contraction. September service sector indicators showed unexpected weakness.
- Consumer confidence declined in October, and consumers indicated they planned to spend less this holiday season.
- Lower interest rates are helping to awaken the US housing market.
- Home builder confidence rose in October to its highest point since April.
The deals down there in the rest of the equity market
The economy is showing resilience, bolstered by the data center book and government incentives aimed at increasing domestic investment. While stocks tied to AI have seen sharp gains and now look pricey, the broader market still appears reasonably valued. That said, the heavy concentration in a few mega-cap tech stocks comes with risk, as they tend to be more volatile when the market turns.
Bond yields ease as Fed cuts rates
With the market already nursing reasonable expectations for an October interest rate cut, the impact of the realized cut was relatively muted. Nonetheless, Treasury yields dipped slightly by about 10 to 15 basis points, offering a bit of relief to bond investors. Despite the ongoing government shutdown – the second-longest in US history – bond markets have largely taken it in stride.
Municipal bonds have seen a more noticeable pullback compared to taxable alternatives, but they still offer attractive yields, especially for those investing in longer-term maturities. Meanwhile, credit markets remain calm as spreads are near historic lows, the economy is holding up well and unemployment remains low.
No clear path out of shutdown
The government shutdown hit the one-month mark as political brinkmanship and partisan tensions remained elevated. November 1st brought a number of relevant deadlines which could bring the shutdown home for more Americans: open enrollment for ACA healthcare plans, which reflect higher premiums absent the expiring tax credits, and the expiration of SNAP/WIC funding.
Good for drivers, bad for drillers
Oil prices have dropped to their lowest point since 2021, even dipping below levels seen during the trade war earlier this year. When oil falls below $60 a barrel, it becomes unprofitable for many US oil companies, bringing pain to producers and reducing domestic drilling activity.
But good news for consumers: cheaper oil usually means lower gas prices. If prices stay where they are now, they could keep gas under $3 a gallon this winter. At a time when other costs – like electricity and natural gas – are rising, cheaper gas is helping boost consumer confidence and ease some of the pressure from inflation.
The bottom line
October continued many of the trends that have become familiar to investors in 2025: AI euphoria, trade tensions ratcheted and released, and the Fed trying to thread the needle between job growth and inflation. Through all these headlines and mixed signals, markets remain strong. Equity growth is broad, if not particularly balanced, and corporate earnings are a bright spot.
- By the end of 2025, we expect a slowing of economic growth in the United States, but not a recession.
- We expect U.S. equities to be volatile for much of 2025. Returns should be positive, but more in line with historical averages, as well.
- We believe that interest rates will continue to fall for the remainder of 2025.
- Cash is king and Bonds are back. We would look to add traditional fixed income, particularly money markets & short-dated bonds, for safety and stability for 2025.
- We recommend investors continue to consider an overweight of alternative investments, including both private equity and debt.
- Gold has reached our current target of $3,500 per ounce, topping out at $4,381.58 on October 17th, 2025. We have raised our long-term target to $4,500 but expect gold to consolidate between $3,500-$4,000 per ounce for the remainder of 2025.
- Cryptocurrencies soared in 2024 and had a volatile start to 2025. We expect continued volatility, but further appreciation in 2025.
- Depending on your timeframe, current investment strategies should be based on what’s happening “Now,” “Next,” and “Later.
- Don’t panic. Be patient. Look to profit.
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