October brought more treats than tricks for investors, as US equity markets extended their upward climb to reach new all-time highs. Despite limited economic data releases amid the government shutdown, markets rallied into month-end, fueled by strong Big Tech earnings and continued enthusiasm around the artificial intelligence (AI) investment cycle. Still, volatility persisted throughout the month, driven by renewed trade tensions between the US and China, growing concerns within private credit markets, and a wave of high-profile layoff announcements from major employers, including Amazon and UPS.

Against this backdrop, monetary policymakers voted in favor of a second consecutive monthly rate cut, bringing the Federal Funds rate into the 3.75% to 4.00% range, the lowest in three years. The path forward from here, however, became a bit more clouded at the same time.

While the October meeting reaffirmed the Fed’s commitment to supporting growth, Chairman Jerome Powell was sure to make clear that a third rate cut at the next meeting in December was far from certain. Market reaction to October’s decision was relatively muted, as the widely expected cut was met favorably, but forward guidance threw some cool water on any greater enthusiasm about continued dovishness in interest rate policy.

Overall, despite the nuanced policy dynamic of the last several days, stocks were higher and yields were down during the month. The Dow Jones Industrial Average (+2.5%) and S&P 500 (+2.3%) posted their sixth-straight monthly gains, while the Nasdaq Composite (+4.7%) tallied its seventh.

The “K-shaped” economic and market environment appears set to continue. Capital expenditure commitments tied to AI data center buildouts accelerated, propelling higher any stocks even casually associated with this spending as many other sectors of the equity market were left behind. New highs across the broad US equity markets have also boosted the confidence of the highest earning households to continue spending, while the government shutdown and potential loss of Supplemental Nutrition Assistance Program (SNAP) benefits for the first time ever weighed on the nearly 42 million low-income Americans who rely on this program.

In summary, October reinforced what has become the defining theme of 2025: a bifurcated market and economy exhibiting strength in the headline numbers without the broader participation that typically signifies a sustainable outcome.

Our Perspective

The bottom line is that we continue to be in an uncertain and fairly unique environment, so the path forward is somewhat precarious. As an experienced manager with a time-tested investment process across asset classes, we feel well prepared for any environment. We continue to believe these uncertain times require active management to consistently strike the right balance between risk and reward.

Our View

Economic Cycle		Economic growth is slowing down and becoming increasingly reliant on narrower subsets of the economy. The Fed is easing policy at a time when inflation remains elevated and financial conditions are already relatively loose. These conditions merit caution.
Stock Market		The US stock market continues to trade near all-time highs. Earnings expectations reflect a rosy outlook. With the Fed looking more cautious on its rate cutting cycle, can earnings growth support higher prices in the potential absence of multiple expansion?
Bond Market		Risks to the economy and inflation look balanced. While elevated levels of inflation and resilient growth could push yields meaningfully higher, a sudden slowdown in growth could also see cuts priced back into the market and yields fall from their current levels. Corporate spreads remain near their lows.
Important Issues on the Radar		Trade Policy: The Trump Administration has rolled out an aggressive trade policy at a time when the US economy is already slowing. It’s unclear how the U.S. and its trading partners will navigate this ordeal, and we see the current trade stance at the very least as having injected a great deal of uncertainty into the global economy.
		AI: Booming investment in semiconductors and AI infrastructure has been a feature of markets for years now. The hyperscalers are committing more of their cash flow towards these initiatives and many players have raised debt to fund these projects. When do investors demand a return on investment for these massive spending commitments?

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Sources: Wall Street Journal, FactSet.

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