October saw equity markets maintain their robust momentum despite uncertainties surrounding the government shutdown and fresh trade disputes with China at the month's outset. Several key benchmarks achieved record highs following a short-lived bout of volatility. Fixed income investments also delivered positive returns as yields fell, supported in part by the Federal Reserve's consecutive interest rate reduction.
While returns were favorable, the month presented notable headwinds. The continuing government shutdown dominated news cycles and sparked concerns about economic contraction, while a sudden escalation over rare earth materials triggered the steepest single-session decline since April. Markets rebounded swiftly, however, demonstrating why reacting impulsively to news flow often proves unwise. These developments also drove gold to unprecedented highs before retreating as October concluded.
Additionally, the Social Security Administration disclosed a 2.8% cost-of-living adjustment for 2026, representing a relatively small increase when compared to prior years and potentially insufficient to match the accelerating costs many retirees encounter. When combined with declining yields on cash investments, this highlights why diversified portfolios offering both income generation and capital appreciation remain essential.
Through these market fluctuations, October's results demonstrate that staying committed to portfolios designed for long-term objectives continues to be the most effective strategy during periods of uncertainty.
Key Market and Economic Drivers
The S&P 500 advanced 2.3% in October, the Dow Jones Industrial Average climbed 2.5%, and the Nasdaq jumped 4.7%. Year-to-date, the S&P 500 has risen 16.3%, the Dow has increased 11.8%, and the Nasdaq has surged 22.9%.
The Bloomberg U.S. Aggregate Bond Index rose 0.6% in October. The 10-year Treasury yield closed the month at 4.08%, down from prior levels.
International developed markets advanced 1.1% in U.S. dollar terms using the MSCI EAFE index, while emerging markets surged 4.1% based on the MSCI EM index. Year-to-date, the MSCI EAFE index has climbed 23.7% and the MSCI EM index 30.3%.
The U.S. dollar index held steady and edged higher to 99.8.
Bitcoin declined modestly in October, finishing the month at $109,428.
Gold prices closed the month at $3,997, following an earlier peak at a record $4,336.
The Consumer Price Index release was delayed by the government shutdown but revealed that prices increased 3.0% year-over-year in September. This data determines the Social Security cost-of-living adjustment (COLA), set at 2.8% for 2026.
Additional economic indicators, including the monthly jobs report, have been postponed due to the government shutdown.
The government shutdown had minimal impact on markets
October commenced with the government shutdown, which now ranks among the longest in history. These situations arise when Congress cannot reach consensus on new spending legislation or agree to extend existing deadlines. Numerous agencies, including those responsible for releasing timely economic data, have operated with skeleton staff since the shutdown began.
Although the shutdown creates genuine hardship for federal employees and their families, it's crucial to maintain proper perspective regarding portfolio implications. Throughout history, government shutdowns have rarely produced enduring effects on markets because government expenditures are generally delayed rather than eliminated entirely. The previous record shutdown extended 35 days during 2018 to 2019, yet the S&P 500 subsequently delivered a 31.5% gain in 2019. While past performance doesn't guarantee future results, this serves as a valuable reminder that markets frequently move beyond such episodes.
Concerns have also emerged regarding workforce reductions in federal agencies. From a macroeconomic standpoint, federal government employment constitutes merely 1.8% of the total workforce, and recent workforce reduction announcements represent only 0.002% of aggregate U.S. employment. Although the shutdown generates substantial challenges for impacted workers and disrupts government operations, its broader economic influence remains constrained.
Trade disputes triggered temporary market fluctuations
Markets experienced their most significant single-day drop since April, sparked by intensifying disputes between the U.S. and China regarding rare earth materials, along with warnings of 100% tariffs on Chinese imports. Rare earth materials represent one of China's most powerful negotiating tools in trade discussions. China commands roughly 70% of worldwide rare earth extraction and approximately 90% of refinement capabilities, resulting in substantial supply chain vulnerability.
Following the brief decline, markets bounced back rapidly after more conciliatory rhetoric emerged from the White House. Presidents Trump and Xi subsequently convened late in the month, producing a de-escalation and a 10% reduction in tariffs applied to China.
This sequence has recurred throughout the year, with trade-related worries triggering temporary setbacks before markets rebound. Notably, the S&P 500 has climbed 37% from its April trough and established 36 fresh all-time peaks this year through October. Naturally, markets never advance without interruption, reinforcing that brief periods of volatility represent normal and anticipated occurrences.
The Fed maintains its rate reduction trajectory
During its October meeting, the Federal Reserve reduced interest rates by 0.25% to a target range of 3.75% to 4.00%, representing its second straight rate decrease. This action demonstrates the Fed's commitment to supporting economic expansion while balancing inflation pressures and softening employment conditions. In its official communication, the Fed observed that "uncertainty about the economic outlook remains elevated" and that "downside risks to employment rose in recent months."
Market participants anticipate another rate reduction by January, potentially followed by one or two additional cuts during 2026. Beyond policy adjustments, the Fed also revealed it would cease reducing its balance sheet in December. This indicates continued bond purchases, effectively maintaining accommodative monetary conditions. Throughout the previous three years, the Fed implemented restrictive measures by shrinking its balance sheet by $2.2 trillion, making this policy shift an additional form of economic stimulus. For investors, falling interest rates combined with supportive monetary policy have traditionally generated opportunities across multiple asset classes.
Retirees confront headwinds from limited COLA and declining yields
The Social Security Administration revealed a 2.8% cost-of-living adjustment (COLA) for 2026, indicating persistent yet moderating inflation. For typical Social Security recipients, monthly benefits will reach approximately $2,064, representing merely a $56 monthly increase. While any enhancement provides relief, this limited adjustment appears modest compared to the 8.7% boost in 2023, which marked the largest since 1981.
The difficulty for retirees stems from the COLA calculation methodology using an index that may not accurately capture their actual cost increases. Healthcare expenditures, housing costs, and other budget categories that consume larger portions of retiree spending have frequently escalated faster than the general index. For instance, medical care services jumped 3.9% annually, health insurance advanced 4.2%, and home insurance surged 7.5%. Food prices climbed 3.1%, while meat, poultry, and fish categories rose 6.0%.
Given that life expectancies continue extending—numerous retirees will reach their 90s—preparing for multi-decade retirement horizons demands portfolios capable of delivering both income and growth. Recognizing how to construct portfolios for these prolonged timeframes, while managing distribution strategies and responding to evolving market environments, emphasizes the importance of thorough financial planning.
The bottom line? Markets delivered strong results in October despite government shutdowns, trade disputes, and various uncertainties. Sustaining a portfolio capable of weathering these challenges continues to represent the optimal approach as the year draws to a close.