October 2025 Financial Markets

Source: Segal Marco Advisors

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Macroeconomics

The Fed reduced its benchmark rate by 25 basis points to 3.75–4.0 percent in October by a 10-2 vote. The Fed also indicated it would end (by December) the quantitative tightening (QT) program on its $6.6 trillion balance sheet with reinvestment of maturing security proceeds into shorter-term Treasury bills. September’s monthly CPI increase of 0.3 percent lifted annual inflation to 3.0 percent. This is the only release of official economic data we will see during the government shutdown.

The ISM Manufacturing PMI survey results decreased to 48.7 in October, with the overall negative trend continuing in lower inventories, new orders and higher prices. The Bureau of Labor Statistics (BLS) release of unemployment data has been delayed by the government shutdown. However, according to private sector payroll service ADP, companies added 42,000 jobs in the month, which is a modest rebound from September. The Conference Board Consumer Confidence Index survey fell one point in October to 94.6.

Equity markets

U.S. equities had a sixth consecutive month of positive returns, with the S&P 500 up 2.3 percent. On a sector basis, Information Technology (+6.2 percent) was the top contributor, with Materials (-5.0 percent) the weakest. Russell 1000 large U.S. cap stocks (+2.2 percent) outpaced both Russell 2000 small-cap stocks (+1.8) and Russell midcap stocks (-0.8 percent). Russell 3000 all-cap growth index (+3.5 percent) outperformed Russell 3000 all-cap value index (+0.4 percent) during the month.

U.S. equity market valuations are at historic highs with both trailing and forward P/E ratios head of longer-term averages. Progress on trade deals, favorable corporate earnings, AI/tech enthusiasm and Fed rate cuts all contributed to the market backdrop.

International equity markets were also positive, with emerging regions (EM +4.2 percent) ahead of developed regions (EAFE +1.2 percent). International markets have outperformed the U.S. S&P 500 (17.5 percent) year to date. They helped by the weakened U.S. dollar, as the MSCI EM (32.9 percent) was ahead of the MSCI EM Local Currency (+30.0 percent) and the MSCI EAFE (26.6 percent) was significantly ahead of the MSCI EAFE Local Currency (+17.5 percent).

Fixed income markets

Fixed income markets were positive, with the Bloomberg U.S. Aggregate Index up 0.6 percent. The U.S. Treasury yield curve steepened, as yields mostly declined month-on-month but increased by 8 basis points on the 1-year Treasury (3.7 percent). Spreads widened during the month from very tight levels on investment-grade corporates, high yield and asset-backed securities.

Looking ahead

While a lessening in global trade tensions and continued strong corporate earnings contributed to the positive capital market returns, markets are priced for perfection. Looking ahead, equity valuations are elevated, the labor market is softening, and the Federal Reserve is weighing future interest rate reductions (which are priced into the market). In addition, the Supreme Court will be hearing arguments related to the constitutionality of President Trump’s tariff actions pursuant to the International Emergency Economic Powers Act of 1977. Stay tuned.