Markets Close a Volatile October on a Positive Note

Markets Close a Volatile October on a Positive Note

Major U.S. and international equity indexes finished in positive territory on Friday, capping off another volatile week of trading. Global equities, measured by the MSCI All Country World Index (ACWI), rose 0.50%, while U.S. equities, represented by the S&P 500, advanced 0.72%. Markets ended the month as a treat rather than a trick this year, with the MSCI ACWI up 1.84% and the S&P 500 returning 1.99%. The standout performers in October were the tech-heavy Nasdaq, which gained more than 4%, and emerging markets, which finished up 3.66%.

Earnings Season Update

Earnings season continued last week, with roughly two-thirds of S&P 500 companies having now reported results. Corporate profitability continues to demonstrate resilience, as the vast majority of companies have delivered stronger-than-expected earnings. These upside surprises suggest that businesses are navigating higher tariffs and slower growth more effectively than anticipated. In addition, renewed optimism surrounding artificial intelligence helped propel large-cap equity indexes to new record highs by week’s end. However, earnings results from the mega-cap technology names were mixed, reflecting some divergence in performance within the group.

Fed Cuts Interest Rates

The Federal Reserve cut interest rates again last week, lowering the federal funds target range to 3.75%–4%, roughly 150 basis points below its peak, in a widely anticipated move that reflects a gradual shift away from the “tight” monetary policy used to fight post-pandemic inflation. Rather than signaling a new phase of stimulus, the adjustment suggests the Fed is moving toward a more neutral stance, easing off the brakes as it grows more cautious about softening labor-market conditions. The central bank also announced it will end the reduction of its Treasury holdings in December, marking the conclusion of its balance sheet unwind after years of quantitative easing.

Fed’s Forward Guidance

The bigger reaction came from the Fed’s forward guidance, with Chair Powell emphasizing that another rate cut is far from guaranteed given a split among policymakers and limited economic data during the government shutdown. Following these comments, markets scaled back expectations for another 25-basis-point move in December, with the probability falling from over 90% to about 60%, underscoring growing uncertainty around the path of monetary policy heading into year-end.

Other Notable News

Other notable news this week included the meeting between President Trump and President Xi, which delivered a modest easing in trade tensions. The U.S. extended its tariff pause for one year, reduced the 20% fentanyl-related tariff to 10%, and China agreed to resume soybean purchases, lift restrictions on rare-earth exports, and pause certain port fees and investigations. These developments provided cautious optimism for global trade. Meanwhile, the U.S. government shutdown continued and is nearing the longest on record, further adding to its economic toll. According to the Congressional Budget Office, a prolonged shutdown could temporarily reduce quarterly real GDP growth by up to two percentage points.

Looking Ahead

For the week ahead, the ongoing government shutdown will likely delay the release of the monthly jobs report, typically published on the first Friday of each month. However, several key economic indicators are still scheduled for release, including the ISM Manufacturing PMI and ISM Services PMI. Markets will also look to the ADP Employment Survey on Wednesday for an early read on labor market conditions, as the BLS report will likely be postponed until government operations resume.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.