Monthly Market Update – October 2025

Key Takeaways

• WIN STREAKS The S&P 500 was up +2.3% in October, made eight all-time highs, and marked a six month win streak. For diversified investors in a 60% equity, 40% bond portfolio, October marked seven straight positive months, thanks to positive performance of non-US equities and bonds in April when the S&P was negative.
• INVESTING NEAR ALL-TIME HIGHS Markets reaching all-time highs often raise concerns about potential downturns, but historically investing near these peaks has led to consistent long-term gains. All-time highs typically signal trend strength rather than market exhaustion, with new highs often leading to further gains.
• LAYOFFS ARE WARNING FOR LABOR MARKET Wall Street economists are growing concerned that widespread corporate layoffs announcements may signal deeper economic issues. The shutdown has disrupted government jobs data, so investors are turning to private sources, which show the highest layoffs since 2020.
• BUT PRIVATE PAYROLLS SHOW UPSIDE SURPRISE But fellow private data source ADP reported a surprising gain of +42,000 private-sector jobs in October—nearly double Wall Street’s expectations—despite recent high layoff figures from Challenger, Gray & Christmas.
• MONETARY POLICY TAILWIND The Fed cut interest rates by 0.25% in both September and October, marking the start of a U.S. rate-cutting cycle that aligns with a broader global trend of monetary easing. With 119 rate cuts globally in 2025, monetary policy is expected to support economic growth into 2026. 
• FISCAL POLICY TAILWIND In addition to monetary easing, fiscal policy should also boost the economy in 2026, thanks to the One Big Beautiful Bill Act (OBBBA) signed in July. The law extends key provisions from the 2017 Tax Cuts and Jobs Act and introduces new tax benefits, including expanded deductions and credits, resulting in an average tax cut of $3,752 per filer.
• EARNINGS POWER ON Third quarter earnings season has delivered strong results, with 82% of S&P 500 companies beating analyst expectations—above both the 5- and 10-year averages. Earnings growth for Q3 is nearly double what was forecast at the start of the quarter. While Q4 growth is expected to moderate, double-digit earnings growth is forecast to resume through 2026, supportive of the ongoing market rally.

Market Summary

Asset Class Total Returns

Source: Bloomberg, as of October 31, 2025. Performance figures are index total returns: US Bonds (Barclays US Aggregate Bond TR), US High Yield (Barclays US HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

WIN STREAKS LIVE ON 

Once again, major US equity indices posted positive results in October with the headline S&P 500 Index, the small cap Russell 2000 Index and technology-heavy Nasdaq Composite Index all posting healthy gains of 2.5%, 2.3% and 4.7%, respectively. Investors were encouraged by a backdrop of U.S.-China trade deal optimism, robust technology sector earnings, and fed rate-cut expectations. The S&P 500 closed at 6,840.20 on October 31, 2025, just off its all-time-high of 6890.89 reached only three days earlier. Dave McGarel, Chief Investment Officer at asset manager First Trust, pointed out in a recent note that it was little more than three years ago, on October 12, 2022, the S&P 500 bottomed for the year at 3,577.03, having fallen -24% from the December 31, 2021, close of 4,766.18. Since that bottom, including dividends, the S&P has now returned +100%. What a comeback! 

October marked the sixth consecutive positive month for the S&P 500 and Russell 2000, their longest streaks since 2021, and the seventh straight month of gains for the Nasdaq—its longest streak since 2018. But it didn’t look like those streaks would hold early in the month when the US government shut down, U.S.-China trade tensions flared up and concerns about the health of regional banks all roiled markets. But by the end of the month, a US-China trade truce had been struck, major banks and big technology companies were reporting strong third quarter earnings, and the Fed was delivering another rate cut. 

Overseas, non-U.S. developed markets stocks advanced but lagged their US counterparts, with the MSCI EAFE Index returning +1.2% for the month. Within non-US developed markets, the MSCI Japan Index was up +3.4% and the MSCI Europe ex United Kingdom Index was up +0.5%, both making three-month win streaks. Emerging Markets rallied much harder, gaining +4.1% in October to easily outpace their developed markets peers. In US dollar terms, the MSCI Emerging Markets Index has been positive for every month of 2025—its longest monthly win streak since 2003. It was the fifth time in six months that it beat its developed market counterparts. Within emerging markets, the MSCI Asia ex Japan Index gained +4.5% for its 11th consecutive positive month and outperformed the MSCI Latin America Index (up +0.9% in October) for the fifth time in six months.

In bond markets, the Federal Reserve lowered interest rates for the second consecutive meeting, setting the benchmark rate between 3.75% and 4.00% at its late October meeting. Fed Chairman Jerome Powell indicated that a further rate cut in December was far from a foregone conclusion, pushing back against market expectations, which had priced in near certainty of another cut in December. Overall, for the month of October, short- and long-maturity U.S. Treasury yields declined modestly, and the broad U.S. bond market, as measured by the Bloomberg US Aggregate Bond Index returned +0.6% for the month, after returns of +0.3% and +1.2% in September and August, respectively. Gains were robust, with all sectors of the Bloomberg US Aggregate Bond Index positive for the month. Mortgage-backed securities (MBS) outperformed other sectors, while corporate bonds lagged. High-yield bonds were positive for the sixth straight month (+0.2% in October) but underperformed on a relative basis. Non-US bonds, however, faced the headwind of a rising US dollar (the US Dollar Index was up +2.1% in October), and didn’t get a rate cut from the European Central Bank, which left interest rates unchanged for a third consecutive meeting. With that background the Bloomberg Global Aggregate Bond Index ex US realized a -1.0% return.

Source: Bloomberg. Data as of October 31, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

INVESTING NEAR ALL-TIME HIGHS

We’ve had a lot of headlines recently about markets hitting all-time highs — and some clients wonder if that means things are too good. But what typically happens after markets hit new highs? How has the market historically performed after hitting all-time highs? What would surprise many is that investing near all-time highs has historically led to consistent gains for long-term investors. The S&P 500 has hit 93 all-time highs over the last 2 years, with 57 record highs reached in 2024, and 36 year-to-date through October 31. Since 1953, the index has returned an average of +1.6% over the next 3 months after hitting an all-time high, and 6 months after hitting a record it has returned an average of +4.5%. What gets interesting is that according to JP Morgan’s analysis, one year after all-time highs, the S&P 500 has returned an average of +9.6% and 2 years later it returned an average of +20.2%, both of which are higher than the non-all-time subsequent returns for those periods. The data suggests that in most cases historically, all-time highs aren’t indicating exhaustion, they’re confirming trend strength. The bottom line is that markets making new highs tend to make more of them, and investing near record levels has not meaningfully impacted returns.

Investing Near “All-Time Highs” Has Often Led to Future Gains

Source: Bloomberg Finance L.P., J.P. Morgan. Note RHS: “Investing at all-time highs” represents average of rolling forward returns calculated from each new S&P 500 record high for the subsequent 3-months, 6-months, 12-months, and 24-months intervals. “Investing at not all-time highs” represents the average of rolling forward returns over the same intervals from days in which the S&P 500 was not at a new high. Data as of August 01, 2025.

LAYOFFS FLASH WARNING FOR LABOR MARKET

Wall Street economists are worried that recent corporate cutbacks may be a warning sign, with companies such as Starbucks, Target, Amazon.com, Paramount, and Molson Coors making significant job cuts. With several government agencies that produce key employment data, including the Bureau of Labor Statistics (BLS), going dark during the government shutdown it has been difficult to gauge the health of the US labor market. As a result, Wall Street has relied even more on private datasets to help fill in some of the gaps. A report from outplacement firm Challenger, Gray & Christmas showed almost 950,000 US job cuts announced this year through September, the highest year-to-date total since 2020. The size and pace of layoffs suggest managers are losing their fear of firing, emboldened by Artificial Intelligence and automation gains, and instead of hoarding workers, companies are trimming their labor costs to protect their profits.

Layoffs Already Higher Than for Any Full Year Since 2020

Announced US Job Cuts by Calendar Quarter

Source: Challenger, Gray & Christmas. Note: Q4 2025 data has not yet been released.

BUT PRIVATE PAYROLLS SHOW UPSIDE SURPRISE

There was no Employment Situation Report available for October as the BLS was still closed because of the government shutdown. And with no updates on nonfarm payrolls growth and unemployment rates, Wall Street again had to look to non-governmental agencies for clues on the labor market. A week following the Challenger, Gray & Christmas layoffs report cited above, payroll services and software provider ADP reported that privately run businesses created +42,000 new jobs in October. That was the first increase in three months and counters the high announced layoffs in the Challenger report. Wall Street forecasts were for only a +22,000 increase in private-sector jobs after a revised -29,000 decline in September. Most of the new jobs were concentrated in transportation and healthcare. Employment fell in leisure and hospitality, usually a sector that sees steady hiring as holidays approach. The ADP report typically takes a back seat to the BLS employment survey published at the start of each month, but offers some reassurance about the labor market’s health in the absence of BLS data.

ADP Reports Modest Job Growth in Absence of BLS Nonfarm Payrolls Report

ADP Private-Sector-Payrolls vs BLS Nonfarm Payrolls, month-over-month change

Source: Bureau of Labor Statistics (BLS), ADP via Federal Reserve Bank of St. Louis, Bloomberg.
Note: Seasonally adjusted.

MONETARY POLICY TAILWIND

As we mentioned last month, the Federal Reserve cut interest rates by 0.25% in September, its first rate cut since December 2024, joining a global trend as other major central banks also ease monetary policy. The Fed lowered the fed funds rate by another 0.25% in late October, with the target range for the federal funds rate now 3.75% to 4%. The move firmly establishes a US rate cutting cycle that becomes a part of the larger global synchronized rate cutting cycle. As shown below, the scale of global central bank easing is substantial. According to cbrates.com, through October, in addition to the two cuts by the Fed, there have been 117 other cuts by world central banks in 2025, for a total of 119 cuts and just 21 hikes. So monetary policy will be a big tailwind for the economy as we wrap up 2025 and move into 2026. There have been 12 rate cutting cycles since 1974, and the S&P 500 Index is up 83% of the time in the following year after the first rate cut, with an average return of +18.9%.

Global Monetary Rate Decisions

Central Bank Policy Rate Hikes and Cuts, 2019 – October 2025

Source: CentralBankRates cbrates.com, as of 10/31/25.

FISCAL POLICY: YET ANOTHER TAILWIND

In addition to monetary policy (the Fed), another big tailwind for the economy in 2026 will come from fiscal policy stimulus. The map below is provided by the Tax Foundation, a leading nonpartisan tax policy nonprofit. The One Big Beautiful Bill Act (OBBBA), signed into law in July, makes the most significant legislative changes to federal tax policy since the 2017 Tax Cuts and Jobs Act (TCJA). Much of the coverage of the OBBBA focused on it making permanent the individual tax changes first put in place by the TCJA, which avoids a tax hike on an estimated 62% of tax filers in 2026. But the law provides additional tax cuts to individuals and businesses on top of TCJA extensions, including new deductions for tipped and overtime income, an expanded child tax credit and standard deduction, and permanence for 100% bonus depreciation on domestic research and development (R&D) expensing. Tax Foundation estimates that across all individual tax filers throughout the country, the average tax cut per taxpayer will be $3,752 in 2026.

One Big Beautiful Bill Average Tax Changes in 2026

State Average Tax Changes per Filer per State

Source: Tax Foundation.

EARNINGS POWER ON

Third quarter earnings season is winding down and US corporate earnings are reporting excellent results relative to Wall Street analysts’ expectations. As of November 7, 91% of the companies in the S&P 500 have reported actual results for Q3 2025. According to FactSet analysis, of these companies, 82% have reported actual earnings above analysts’ estimates, which is above the 5-year average of 78% and above the 10-year average of 75%. If the 82% ‘beat rate’ is the final number for the quarter, it will mark the largest percentage of S&P 500 companies reporting a positive earnings surprise for a quarter since Q3 2021 when it was also 82%. When the third quarter ended, on September 30, analyst expectations were for third quarter earnings to grow at a +7.9% annual rate, and just before the quarter began, on June 30, the estimate was only +7.3%. So Q3 earnings growth is nearly twice the rate it was expected to be as the quarter began. As the chart below shows, in all likelihood, this will be the fourth straight quarter of double-digit earnings growth, which hasn’t occurred since Q1-2021 through Q4-2021. Looking forward, Wall Street is forecasting S&P earnings to dip to +7.6% for the fourth quarter but then are forecasted to grow by double-digits over the subsequent four quarters of 2026. The key takeaway is that robust corporate earnings growth is essential for sustaining the market rally and compensating investors for historically high valuations.

S&P 500 Earnings Growth

(Quarterly Annualized Rate of Growth, Q4-2024 to Q4-2026)

Source: FactSet.

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment. It offers many long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (Vanguard Total International Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 24% US Bonds, 10% International Bonds, 6% High Yield Bonds, 14% Large Growth, 14% Large Value, 4% Mid Growth, 4% Mid Value, 1% Small Growth, 1% Small Value, 17% International Stock, 4% Emerging Markets, 2% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.