October 2025 Market Insight Report
The first month of the fourth quarter is in the books. During October, capital markets rallied despite macroeconomic headwinds, with equities, bonds, and tech leading gains amid rate cuts and easing inflation.
I wanted to wait to complete this review until we had the results of the New York mayoral race, as well as the gubernatorial races in New Jersey and Virginia.
Global Market Highlights
Here’s a detailed breakdown of key developments across global capital markets in October 2025:
Equity Markets
U.S. stocks rose, with the S&P 500 gaining 2.3%, nearing all-time highs.
The “Magnificent Seven” mega-cap tech stocks surged 4.8%, driven by continued momentum in artificial intelligence (AI) investments.
International equities posted solid gains of 1.7%, led by emerging market tech firms benefiting from the AI buildout.
Fixed Income
Investment-grade bonds rallied, with the Bloomberg US Aggregate and Municipal Bond Indexes each returning about 1.0%.
The rally was fueled by declining long-term rates and increased expectations of further rate cuts, driven by concerns over economic slowdown and a weakening jobs market.
Even the recent release of non-farm payrolls was fairly lackluster, with just 42,000 new jobs added to the economy.
Monetary Policy & Inflation
The Federal Reserve cut interest rates by 0.25%, bringing the federal funds target range to 3.75–4.00%.
This move was in response to cooler-than-expected core inflation, which ticked down despite headline inflation rising slightly.
The rate cut aimed to support a weakening labor market and bolster economic resilience. However, the Fed tempered market enthusiasm by cautioning against assuming a rapid pace of cuts.
We continue to see the Fed as highly data-driven. They will need clear evidence before continuing rate reductions and are unlikely to act preemptively. Ultimately, the Fed remains equally concerned about a potential echo cycle of inflation and a slowing economy.
Global Trends
The IMF maintained its global growth forecast at 3.1% for 2025, citing fading inflationary pressures and subdued trade.
Currency and commodity markets showed mixed signals, reflecting policy uncertainty and cyclical divergence across regions.
U.S. Economic Conditions
Despite a government shutdown causing a data blackout, GDP growth remained near 4%, and consumer sentiment held firm.
However, analysts noted a “two-speed” economy, with top-end growth driven by fiscal stimulus and AI investment, while the broader economy remains somewhat fragile.
Outlook for the Remainder of 2025
Our outlook for capital markets through the end of 2025 remains cautiously optimistic. AI-driven tech, small-cap value stocks, and falling interest rates are expected to support gains, though optimism is offset by persistent risks from geopolitics and credit markets.
Key Market Drivers Analysts are Watching for the Remainder of 2025:
Mega-cap tech stocks continue to dominate, but small-cap stocks are becoming more attractive due to lower valuations and potential rate tailwinds.
Analysts expect continued strength in AI and cloud computing, especially among firms with stable cash flows and strong balance sheets.
The Fixed Income Market remains driven by expectations of further rate cuts.
The Federal Reserve’s second consecutive rate cut in October brought the federal funds rate to 3.75–4.00%, the lowest in three years.
Bond markets rallied as yields fell for the third straight month, with the Bloomberg US Aggregate Bond Index gaining 0.6%.
Further rate cuts could support investment-grade and municipal bonds, especially if inflation remains tame.
The global economy is limping into year-end, facing headwinds from geopolitical tensions, cybersecurity threats, and policy fragmentation.
Despite record highs in equity markets, underlying risks, such as private credit stress and trade disputes, could trigger volatility.
Key Themes to Watch
AI investment cycle: Remains the dominant growth engine, with firms like Amazon and AMD posting blockbuster earnings.
Sector rotation: May favor value and small-cap stocks as growth premiums narrow.
Volatility Risks: Layoffs, credit market concerns, and uncertain fiscal policy—exacerbated by the U.S. government shutdown—could contribute to increased volatility.
Strategic Takeaways
Diversification, as always, remains key. The desire to ride the AI wave should be balanced by maintaining exposure to small-cap and international equities.
Bond allocations could become more favorable if yields decline due to actual and anticipated rate cuts.
Investors should continue to review asset allocations and ensure portfolios align with long-term goals rather than attempting to time the market.
Political Developments
The US political environment remains fractured, and the Democrats won all three critical races on Election Day.
New Jersey: New Jersey has been a Democratic stronghold for many years, so it was not a major surprise that Mikie Sherrill won. However, she won decisively, and this may be viewed as giving her a mandate.
Virginia: Abigail Spanberger won the Virginia Governor’s race also with a commanding vote total of 57.2%. This was a significant victory as the Virginia governorship shifted from Republican to Democratic control.
New York City: Perhaps no other race was more widely watched than the New York mayoral race. Despite calls for Curtis Sliwa to drop out and consolidate support for Andrew Cuomo, Zohran Mamdani secured 50.4% of the vote, winning by a narrow plurality. Ultimately, this outcome appears less a referendum on capitalism versus socialism and more a reflection of the population of our largest city’s call for economic relief.
Mamdani’s agenda may prove to be too audacious, and, in a certain sense, his success or failure will likely play a major role in shaping midterm election narratives. The performance of Mamdani’s plan for free buses, city-owned grocery stores, and rent freezes will either bolster Democrat populism or allow the Republicans the ability to point and argue that such policies are unsustainable. It will be an interesting year for sure!
Global Geopolitical Landscape
The world remains a dangerous place as the ceasefire between Israel and Hamas seems to be extremely fragile. The war in Ukraine continues to grind on, with Russia showing no desire to end the conflict, and global fatigue mounting among nations attempting to intervene. China and U.S. relations remain tense, with ongoing trade and technology disputes, and we are waiting on the Supreme Court’s judgment with respect to tariff policy being driven by the Executive Branch as opposed to the Legislative Branch.
Closing Thoughts
The strong market performance through October marks nearly three years of sustained gains for U.S. capital markets. While we continue to eschew market timing, we do recommend that investors take opportunities to rebalance portfolios and review their asset allocation and investment policy to ensure that their investments still align with their long-term objectives. We are always here to have that discussion with you.
Disclaimer: Investment advisory services offered through Innovative Asset Advisors Group, LLC, (“IAAG”), a Registered Investment Advisor with the U.S. Securities and Exchange Commission. Registration does not imply any level of skill or training. The content provided is for informational purposes only and does not constitute investment, legal, or tax advice. Investments, including equities, bonds, commodities, real estate, and alternative assets, carry risks, including the potential loss of principal. Past performance is not indicative of future results. Before making any financial decisions, you should consult with your personal financial, legal, or tax advisor to evaluate your individual circumstances. IAAG does not guarantee the accuracy, completeness, or timeliness of the information presented, and it may be subject to change without notice. This material, or any portion thereof, may not be reprinted, sold, or redistributed without the written consent of Innovative Asset Advisors Group, LLC.
