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Welcome to our monthly dive into the markets, where we separate the signal from the noise in Wall Street’s gossip. In short, October highlights a period of robust U.S. growth tempered by worldwide uncertainties. Here is what we are watching and the lessons we can take away.


A Strong Summer Sets the Stage for Stocks
U.S. stocks enjoyed their second-best summer since 1950, with the S&P 500 returning 20.8% from May 1 to September 30. Historically, such strong summers have always led to positive year-end gains, averaging solid Q4 performance. Year-to-date through August 31, U.S. stocks were up 25.1%, outpacing international stocks, bonds, and cash. This momentum, driven by AI-related spending and resilient economic data, reinforces our case for growth-oriented assets in portfolios. However, the outlook is not entirely rosy. Sentiment analysis indicates a “derisk” regime, which means it is wise to balance enthusiasm with caution. This is our mindset and attitude leading into Fall through year’s end.

Fed Resumes Rate Cuts Amid No Recession
The Federal Reserve cut rates by 25 basis points in September, its first easing since 2024, with projections for 1-2 more cuts this year. This move comes against a backdrop of solid growth: Q2 GDP was revised upward to 3.8%, with forecasts suggesting similar numbers throughout Q3 and Q4. From here, advisors are split on the long-term path of economic growth. The lesson? Lower rates can support growth, but in an environment like this, the future can shift dramatically and suddenly. We are reviewing the potential economic opportunity costs and benefits of asset classes to include or exclude in our portfolios.


Government Shutdowns: Limited Market Impact

With fiscal deadlines looming (for instance, Affordable Care Act subsidies expiring December 31), government shutdowns are back in focus. Since 1976, they’ve averaged 4 days (median), with minimal S&P 500 reactions—0.7% average drop during, but 2.6% gain three months after and 12.4% a year later. This is to say that markets have historically shrugged off these shutdown events, underscoring the advice to keep politics out of your portfolio. In today’s context, amid US-China trade tensions and Middle East diplomacy progress (especially with Gaza hostage releases), this resilience highlights the value of diversification over knee-jerk reactions.

USD Drop: Not Unusual, But Watch EM Boosts

The U.S. dollar has weakened year-to-date (index at 99.5), largely due to Fed rate cut expectations and rising yields internationally. This isn’t a sign of lost reserve status—it’s consistent with historical drivers and has held steady against major currencies like the Euro and Yen. The flip side? Dollar weakness boosts emerging market assets as cheaper dollars offer better settlement terms for international trade. Worth noting too, is how Gold surged past $4,000/oz, offering growth diversification potential amid de-dollarization and industrial re-shoring to the U.S. The lesson here: In a multipolar world becoming more polarized, international fund managers can enhance returns with judiciously select investments, especially among regions where trade frictions simmer.

Valuations Backed by Growth, But Skeptically

Earnings strength, particularly in tech, has propelled the S&P 500, with valuations above historical averages but justified by persistent earnings beats and AI-driven excitement. Q2 GDP growth extended into 2025 forecasts, supporting a growth mindset. Yet, with over-optimism among managers according to sentiment surveys, and ongoing uncertainties like Ukraine escalation risks, a prudent stance recommends hedging some of this growth. We are examining asset classes for their ability to diversify returns, important too as equity and bond prices are becoming more correlated, and we will monitor for regime shifts in the business cycle.

As always, these lessons emphasize evidence over emotion: Robust data supports growth, but geopolitical and fiscal risks call for prudence. Please give us a call and talk to your advisor about your retirement goals if you have any questions or concerns.

Fun Fact: Did you know that the longest U.S. government shutdown on record lasted 34 days (2018-2019), yet the S&P 500 gained 9.3% during it and 24.7% a year later? Markets often reward patience amid political noise!  The Longest Government Shutdowns in U.S. History | TIME