Government Shutdown Stalls Economic Data, but Not Stocks & Bonds as Gains Continued in October
HIGHLIGHTS:
- Stocks: The major U.S. stock indices continued to add to new all-time highs in October despite the government being shut down for the entire month. Stocks broadly advanced but large-cap growth maintained leadership.
- Bonds: The 10-year U.S. Treasury closed September at 4.16%, and it slid below the important 4% mark at times during October–closing at 3.97% on October 22, its closing low for the year. The yield settled at 4.11% by month’s end.
- U.S. Economy: The government shutdown, which began at the start of the month, resulted in few economic data releases. We will comment on a few data points received during the month in the economic section below.
- Federal Reserve: The Fed followed up its September rate cut with another widely anticipated cut in October. Chair Powell was somewhat hawkish in his October press conference, which helped push yields modestly higher in the last few days of the month.
Equity Markets
Equities continued to broadly rally in October. See Table 1 for October 2025 and YTD returns.
Table 1 | Equity Markets
| Index | October | YTD |
|---|---|---|
| S&P 500 | 2.34% | 17.52% |
| S&P 500 Equal Weight | -0.95% | 8.86% |
| DJIA | 2.59% | 13.34% |
| Russell 3000 | 2.14% | 16.85% |
| NASDAQ Comp. | 4.72% | 23.50% |
| Russell 2000 | 1.81% | 12.39% |
| MSCI ACWI ex U.S. | 2.02% | 28.57% |
| MSCI Emerging Mkts Net | 4.18% | 32.86% |
The equity rally continued in October, and large-cap growth stocks enjoyed some of the best results for the month. The Nasdaq Composite Index showed the strongest returns in October, while the equal-weight S&P 500 Index slid lower for the month. This difference illustrates the strength of the larger market-cap weighted companies as smaller companies (which get an equal weight in an equal weighted index) lagged. The Russell 2000 Index, a measure of small-cap stocks, added to its new high achieved in September, but its results were among the weakest of the equity markets last month. International stocks advanced again in October with emerging market equities showing particular strength in recent months. Both measures of international stocks are well ahead of their U.S. counterparts after underperforming for much of the last 15 years. Following the April lows, stocks have had an impressive rally with little weakness along the way. It is imperative to remember that stocks can be volatile, and some profit taking or normal consolidation would not be unexpected over the near term after such solid recent gains.
Fixed Income
Bonds continued their solid year with another month of good returns. Generally, rates moved lower during the month, which led to a positive backdrop for most bond sectors. See Table 2 for bond index returns for October 2025 and YTD.
Table 2 | Fixed Income Markets
| Index | October | YTD |
|---|---|---|
| Bloomberg U.S. Agg | 0.62% | 6.80% |
| Bloomberg U.S. Credit | 0.44% | 7.37% |
| Bloomberg U.S. High Yld | 0.16% | 7.39% |
| Bloomberg Muni | 1.24% | 3.91% |
| Bloomberg 30-Year U.S. TSY | 1.39% | 5.70% |
| Bloomberg U.S. TSY | 0.62% | 6.01% |
The 10-year U.S. Treasury yield dipped below 4% in October for the first time since a brief intraday decline at the height of the tariff concerns in early April. The last several months have seen rates generally declining, which has created a solid backdrop for bond returns. This move lower in rates gained some momentum as weaker job market data led to heightened market expectations that the Fed would resume its rate cut cycle, which it did in September. Munis, one sector of the bond market that struggled during the first half of the year, had market-leading results for the third quarter and strong results to start the fourth quarter as well. Although muni returns still lag other bond indices year-to-date, this area of the bond market has seen solid recent gains. Bonds have done their job in 2025—posting solid gains and helping to offset early-year equity market volatility. We maintain our long-standing position favoring credit versus pure rate exposure in this interest rate environment. Credit spreads have remained near historic lows as corporate bonds have outperformed Treasuries so far this year. We also believe the role bonds play in a portfolio, to provide stable cash flow and to help offset the volatility of stocks in the long run, has not changed. As the Fed resumes its rate-cutting cycle, we believe having an active bond management approach makes sense. Furthermore, rates remain elevated and in our opinion, provide attractive opportunities for bond investors.
Economic Data Highlights and Outlook
Our comments will be limited in this section as the government shutdown resulted in most economic data not being compiled or released. With that said, we will highlight a few releases of note.
Some workers at the Bureau of Labor Statistics (BLS) were required to return to work to calculate the Consumer Price Index, which by law is needed for cost-of-living adjustments (COLA), principally for social security. Although this economic data point was highly anticipated due to it being about inflation and being one of the only economic releases to be made, it was more or less a non-event. Both the headline and the core numbers were 0.1% better (lower) than expected for the month and year-over-year readings for September. The core and the headline year-over-year price increases through September are now the same at 3.0%. (Please see Chart 1 below.)
Chart 1
The Institute for Supply Management (ISM) Manufacturing Index continued to reflect contraction with a reading of 49.1 compared to expectations of 49.0 for September. New orders slipped below 50 when a reading of 50 was expected. The ISM Non-Manufacturing Index, which covers the much larger service industries in the U.S. economy, came in at 50 in September, which was lower than expectations of 51.7 and a decline from August’s level of 52.0. Recall for the ISM indices, readings above 50 represent expansion and below 50 reflect contraction.
The preliminary University of Michigan Consumer Sentiment survey for October was modestly better than expected at 55 versus expectations of 54 but fractionally lower than September’s mark of 55.1. After recovering in the summer from very pessimistic levels following the tariff announcements in April and May, consumer sentiment has slid lower from late summer and into fall.
Finally, the Atlanta Fed GDP Now estimate shows expected Q3 2025 growth to come in at a 4.0% annualized pace (as of November 3, 2025), which would surpass the strong final growth rate of 3.8% in the second quarter. However, with the government shutdown, the preliminary reading of Q3 GDP was not reported at the end of October as it was originally scheduled.
The Federal Reserve cut rates as expected at the end of October; however, Chair Powell’s press conference comments were somewhat hawkish and lowered the odds of a rate cut at the final FOMC meeting of 2025 in December. Odds still favor a rate cut at this meeting, but now the probability lies at 67.5% when it had been north of 90% prior to the most recent FOMC meeting (per the CME FedWatch Tool as of November 3, 2025). The rate cut cycle is ongoing, but the pace might be modestly slower than the market previously expected.
Markets have proven to be strong for most of the year. Following the shock of the tariff announcements in April, stocks have recovered since the Trump administration paused on the implementation, and most negotiations have resulted in lower levels than initially feared. The government shutdown has not placed any real strain in the stock market either, and ongoing Fed rate cuts have supported both stock and bond market progress. The market might become more impatient if the shutdown continues for an extended period and we miss additional economic releases. However, through October, the market was able to look past the lack of economic news and focus on rate cuts and improving earnings growth of U.S. companies. Stock valuations have crept higher and sit at elevated levels. However, valuations have not grown too alarming in our opinion as third quarter earnings season is progressing well, with 85% of companies exceeding analysts’ estimates. Earnings expectations have picked up over the last several weeks and are now at record highs, and earnings growth is expected to increase over the next several quarters as well. We believe there are opportunities in the stock market as we close out 2025, and elevated bond yields may provide opportunities in fixed income as well despite yields recently moving lower. As always, we believe it is imperative for investors to stay focused on their long-term goals and not let short-term swings in the market derail them from their longer-term objectives.
Please Note: Items highlighted in blue in the table below have not been updated since the prior month due to the government shutdown and updates to those prior readings not being available.
Economic Data
| Event | Period | Estimate | Actual | Prior | Revised |
|---|---|---|---|---|---|
| ISM Manufacturing | Sept | 49 | 49.1 | 48.7 | — |
| ISM Services Index | Sept | 51.7 | 50 | 52 | — |
| Change in Nonfarm Payrolls | Aug | 75k | 22k | 73k | 79k |
| Unemployment Rate | Aug | 4.30% | 4.30% | 4.20% | — |
| Average Hourly Earnings YoY | Aug | 3.80% | 3.70% | 3.90% | — |
| JOLTS Job Openings | Aug | 7200k | 7227k | 7181k | 7208k |
| PPI Final Demand MoM | Aug | 0.30% | -0.10% | 0.90% | 0.70% |
| PPI Final Demand YoY | Aug | 3.30% | 2.60% | 3.30% | 3.10% |
| PPI Ex Food and Energy MoM | Aug | 0.30% | -0.10% | 0.90% | 0.70% |
| PPI Ex Food and Energy YoY | Aug | 3.50% | 2.80% | 3.70% | 3.40% |
| CPI MoM | Sept | 0.40% | 0.30% | 0.40% | — |
| CPI YoY | Sept | 3.10% | 3.00% | 2.90% | — |
| CPI Ex Food and Energy MoM | Sept | 0.30% | 0.20% | 0.30% | — |
| CPI Ex Food and Energy YoY | Sept | 3.10% | 3.00% | 3.10% | — |
| Retail Sales Ex Auto and Gas | Aug | 0.40% | 0.70% | 0.20% | 0.30% |
| Industrial Production MoM | Aug | -0.10% | 0.10% | -0.10% | -0.40% |
| Building Permits | Aug P | 1370k | 1312k | 1362k | — |
| Housing Starts | Aug | 1365k | 1307k | 1428k | 1429k |
| New Home Sales | Aug | 650k | 800k | 652k | 664k |
| Existing Home Sales | Sept | 4.06m | 4.06m | 4.00m | — |
| Leading Index | Aug | -0.20% | -0.50% | -0.10% | 0.10% |
| Durable Goods Orders | Aug P | -0.30% | 2.90% | -2.80% | -2.70% |
| GDP Annualized QoQ | 2Q T | 3.30% | 3.80% | 3.30% | — |
| U. of Mich. Sentiment | Oct P | 54 | 55 | 55.1 | — |
| Personal Income | Aug | 0.30% | 0.40% | 0.40% | — |
| Personal Spending | Aug | 0.50% | 0.60% | 0.50% | — |
| S&P Cotality CS 20-City YoY NSA | Aug | 1.30% | 1.58% | 1.82% | 1.81% |
Source: Bloomberg; P=Preliminary, T=Third Reading.
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