The stock market kept performing well in October, even though there was uncertainty from a government shutdown and new trade tensions with China at the start of the month. Many important market indexes hit new record highs after bouncing back from a short period of ups and downs. Bonds (which are loans to companies or governments) also helped investment portfolios grow as interest rates went down, partly because the Federal Reserve (the central bank that manages U.S. monetary policy) cut rates for the second month in a row.
Even though the market went up overall, there were some difficulties. The government shutdown made news and worried people about a potential recession (a period of economic decline). There was also a brief “tariff tantrum” (market reaction to trade fees) over rare earth metals that caused the biggest one-day market drop since April. But markets bounced back quickly, showing why it’s important not to overreact to news headlines. These market movements also pushed gold to a new record price before it came back down near the end of the month.
The Social Security Administration (the government agency that manages retirement benefits) also announced a 2.8% cost-of-living adjustment for 2026. This is a small increase compared to recent years and might not keep up with the rising costs that many retirees are dealing with. When you combine this with lower interest rates on savings accounts, it shows why it’s important to have balanced investment portfolios that provide both income and growth potential.
Even with these market swings, October’s results show that keeping an investment portfolio that matches your long-term goals is still the best way to handle uncertainty.
Key Market and Economic Information
- The S&P 500 (an index that tracks 500 large U.S. companies) went up 2.3% in October, the Dow Jones Industrial Average (an index of 30 major companies) rose 2.5%, and the Nasdaq (an index heavy in technology companies) gained 4.7%. For the year so far, the S&P 500 is up 16.3%, the Dow is up 11.8%, and the Nasdaq is up 22.9%.
- The Bloomberg U.S. Aggregate Bond Index (which tracks U.S. bonds) gained 0.6% in October. The 10-year Treasury yield (the interest rate on government bonds that mature in 10 years) ended the month lower at 4.08%.
- International developed markets (stocks in wealthy countries outside the U.S.) gained 1.1% in U.S. dollar terms using the MSCI EAFE index, while emerging markets (stocks in developing countries) jumped 4.1% based on the MSCI EM index. For the year so far, the MSCI EAFE index has gained 23.7% and the MSCI EM index 30.3%.
- The U.S. dollar index (which measures the dollar’s strength against other currencies) stabilized and rose slightly to 99.8.
- Bitcoin (a digital currency) fell somewhat in October, ending the month at $109,428.
- Gold prices ended the month lower at $3,997, after reaching a new all-time high of $4,336 earlier in the month.
- The Consumer Price Index (a measure of inflation) was reported late because of the government shutdown, but showed that prices rose 3.0% compared to a year earlier in September. This report is used to calculate the Social Security cost-of-living adjustment, which will be 2.8% in 2026.
- Other economic data, such as the monthly jobs report, has been delayed because of the government shutdown.
Markets weren’t bothered by the government shutdown
October started with the government shutdown, which is now approaching the longest on record. This happens when Congress (the legislative branch of government) can’t agree on a new budget or a plan to extend the deadline. Many government agencies, including those that provide timely economic reports, have been operating at minimal levels since then.
While the shutdown creates difficulties for many federal workers and their families, it’s important to keep perspective when it comes to our investment portfolios. In the past, government shutdowns haven’t had lasting effects on financial markets because government spending is typically delayed rather than completely eliminated. The longest previous shutdown lasted 35 days during 2018 to 2019, but the S&P 500 went on to gain 31.5% in 2019. There’s no guarantee this will happen again, but it’s a reminder that markets often look past these events.
There are also concerns about government layoffs, known as reductions in force. Looking at the bigger picture, federal government employment represents only 1.8% of all workers, and recent reduction-in-force notices amount to just 0.002% of total U.S. employment. While the shutdown creates real difficulties for affected workers and interrupts government services, its overall impact on the economy remains limited.
Trade tensions created brief ups and downs
The market also experienced its sharpest one-day decline since April, driven by growing tensions between the U.S. and China over rare earth metals (special materials used in electronics and other products), and the threat of 100% tariffs (fees on imported goods) on Chinese goods. Rare earth metals represent one of China’s greatest points of leverage in trade discussions. China controls approximately 70% of global rare earth production and nearly 90% of processing capacity, creating significant supply chain dependence.
Despite the brief selloff (when many investors sold their investments), markets quickly recovered following softer language from the White House. Presidents Trump and Xi then met near the end of the month, which resulted in reduced tensions and a 10% decline in the tariffs imposed on China.
This pattern has repeated throughout the year, with trade-related concerns causing temporary pullbacks followed by a market recovery. Specifically, the S&P 500 has risen 37% from its April low and has set 36 new all-time highs this year through October. Of course, the market never moves up in a straight line, so this is a reminder that short periods of market volatility (ups and downs) are normal and expected.
The Fed continues lowering interest rates
At its October meeting, the Federal Reserve lowered interest rates by 0.25% to a range of 3.75% to 4.00%, marking its second month in a row of rate cuts. This decision reflects the Fed’s efforts to support economic growth while managing inflation (rising prices) and a weakening labor market. In its statement, the Fed noted that “uncertainty about the economic outlook remains elevated” and that “downside risks to employment rose in recent months.”
Market expectations suggest another rate cut is likely by January, with one or two additional rate cuts in 2026. Beyond setting interest rates, the Fed also announced it would stop shrinking its balance sheet (the assets it owns) in December. This means they would continue to buy bonds, effectively maintaining supportive monetary policy (actions to help the economy). Over the past three years, the Fed has tightened policy by reducing its balance sheet by $2.2 trillion, so ending this process provides additional economic support. For investors, declining interest rates and supportive monetary policy have historically created opportunities across different types of investments.
Retirees face challenges from modest Social Security increase and lower interest rates
The Social Security Administration announced a 2.8% cost-of-living adjustment for 2026, reflecting continued but slowing inflation. For the average Social Security beneficiary (person receiving retirement benefits), the monthly benefit will be about $2,064, an increase of only $56. While any increase helps, this modest adjustment is much smaller compared to the 8.7% increase in 2023, which was the largest since 1981.
The challenge for retirees is that the cost-of-living adjustment is calculated using an index that may not reflect the actual inflation they experience. Healthcare costs, housing expenses, and other categories that make up a large part of retiree budgets have often risen faster than the overall index. For example, medical care services rose 3.9% over the past year, health insurance increased 4.2%, and home insurance climbed 7.5%. Food prices increased 3.1%, but meat, poultry, and fish rose 6.0%.
With life expectancies continuing to increase—many retirees will live into their 90s—planning for multi-decade retirement periods requires portfolios that can provide both income and growth. Understanding how to structure investment portfolios for these extended timeframes, while managing withdrawal rates (how much you take out each year) and adapting to changing market conditions, underscores the value of comprehensive financial planning.
The bottom line? Despite government shutdowns, trade tensions, and other uncertainties, markets continued performing well in October. Keeping an investment portfolio that can handle these challenges remains the best approach as we near the end of the year.