The S&P 500, Dow Jones, and Nasdaq posted positive returns in October, with falling short-term interest rates and strong corporate earnings supporting markets. In fact, the average Q3 earnings growth rate for the S&P 500 stood at nearly 10.7 percent at the end of October, above analysts’ 7.9 percent estimate at the end of September.

“If you are driving in a fog, you slow down.” — Fed Chairman Jerome Powell, October 29, 2025 

What does a data-dependent Fed do when the data isn't available? In this month's episode of the Market Observatory, Sam and I discuss how the government shutdown is affecting the central bank and investors, including:

As of midnight Tuesday, the U.S. government shut down, as lawmakers couldn’t reach an agreement on a short-term bill to continue funding government expenditures. Currently, none of the 12 appropriations bills have been passed. This is the first shutdown since December 2018. There is certainly a human element to consider, as many government workers will be furloughed and others will continue to work without pay. Benefit payments and tax collections will continue. 

September was another positive month for markets, as the S&P 500, Dow, and Nasdaq set new record highs. The international story was similar, with developed and emerging markets gaining for the month. Short-term interest rates also fell in September, as the Fed resumed cutting rates at its mid-month meeting. Markets anticipate one or two additional rate cuts by year-end.

This week’s Fed meeting resulted in a much-anticipated interest rate reduction of 25 bps, to a range of 4 percent to 4.25 percent. This move followed a nine-month pause in its rate-cutting cycle, which began a year ago. Historically, equity markets have responded favorably to rate cuts after a pause of six months or more. But it’s been a while since we last saw this pattern. The Fed has not resumed a reduction cycle after a lag of that duration since July 2003. Markets have changed a lot since then. 

With the latest jobs data weaker than expected, many—including the equity markets—are counting on a rate cut at the Fed's next meeting. In this month's episode of the Market Observatory, Sam and I discuss what's ahead, including:

Despite volatility early on, the S&P 500, Dow, and Nasdaq were up low- to mid-single digits for August. These results brought markets to record highs and indicated continued investor demand for U.S. stocks. International stocks also ended the month in positive territory, as risk assets rallied. Even bonds were up, as falling interest rates supported bond prices.

After a volatile first four months of 2025, it was a good summer for investors to go on vacation, as markets, for the most part, went up weekly. In fact, the major equity indices closed August near their all-time highs.

In this month's episode of the Market Observatory, Sam and I break down the latest market and economic news, including: