October 2025 Monthly Commentary

MARKET OVERVIEW:

The beginning of the 4th quarter has proven to be challenging for markets as the government shutdown continues to halt economic data releases. Despite the shutdown, the Federal Reserve moved rates lower again in October, bringing the federal funds rate to 3.75%-4%. Interest rates moved only slightly as the move was mostly anticipated.   Risk markets continued to defy gravity, driven by euphoria in the AI space, and solid earnings from some of the “mega caps”.

EQUITY MARKETS PERFORMANCE:

U.S. equities delivered another solid performance month, led by the tech sector. Health care and consumer discretionary also contributed to the S&P October gain (+2.34%). Financials and materials were the biggest laggards to the index. The Dow Jones Industrial Average rose 2.59%. The tech-heavy Nasdaq Composite rose 4.72% with stellar earnings reports from Amazon and Alphabet. Equity markets did fall on October 10th, as President Trump threatened new tariffs on China. As both earnings season and another rate cut came to pass, stocks gained ground and sectors like semi-conductors soared.

FIXED INCOME MARKETS PERFORMANCE:

The fixed income markets saw some volatility around the Federal Reserve meeting, but the yield curve in general was little changed during the month. The US 2-year Treasury Note finished October 4 basis points lower to yield 3.57%. US 10-year notes finished 7 basis points lower to yield 4.08%. The benchmark 10-year note did close lower than 4% on several trading days during the period. Interestingly, the curve “flattened” slightly in October, with longer duration bonds outperforming shorter maturities.

Investment grade fixed income did notch positive performance, led by government bonds and US MBS. Credit sectors, while positive, surprisingly, were not the leader in October. Discussions around private credit and “mark to mystery” pricing of the space have some questioning the tight levels in all risk premium levels. Municipal bonds, on the other hand, had a good “catch up” month and outperformed most fixed income sectors. Tax exempt aggregate benchmarks rose 1.24% in October, compared to 0.62% for the taxable US aggregate. Emerging bond markets continue to perform particularly well.

While it is difficult to review a month with very few data points, we can find a few takeaways. Stock markets are indicating a solid outlook to US growth, albeit it may be bifurcated with “haves and have-nots”. Gold soared to new heights last month, reaching $4,356 an ounce on October 20th (before settling back at $ 4,000 on the month's end). Crypto markets are seeing elevated volatility.

Chairman Powell’s speech following the FOMC rate decision gave investors some direction for the 4th quarter. It’s clear the Fed is more focused on employment than an inflation mandate. Recent employment data (including the latest ADP report) has been weak, although inflation remains elevated. There has also been more dissention than usual at FOMC decisions. Powell made it very clear that a December rate cut “is far from” being decided on. His analogy, “what do you do when driving through fog? You slow down” …suggest that some members would like to take a wait and see on the progression of both mandates, before lower rates again.

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Supporting footnotes from Bloomberg: