October Market Update: Government Shutdown, Trade Tensions, and Social Security

Chris
November 5, 2025

In October, the stock market kept doing well even though there was uncertainty about a government shutdown and new concerns about trade with China. Many important market indexes hit new record highs after a short period of ups and downs. Bonds also helped investor portfolios as interest rates went down, partly because the Federal Reserve (the Fed, which is America’s central bank) lowered rates for the second time in a row.

Even with these gains, the month had its difficulties. The government shutdown made headlines and worried some people about a possible recession. There was also a brief “tariff tantrum” (a market reaction to proposed fees on imported goods) related to 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 events also pushed gold prices to a new record before they fell back near month’s end.

The Social Security Administration (which manages retirement benefits for Americans) announced a 2.8% cost-of-living adjustment for 2026. This is a smaller increase than in recent years and may not keep up with the rising costs that many retired people face. When combined with lower interest rates on savings accounts, this shows why it’s important to have balanced investment portfolios that provide both income and growth.

Even with these market swings, October’s results show that sticking with a portfolio that matches your long-term goals is still the best way to deal with uncertainty.

Important Market and Economic Information

The S&P 500 (an index tracking 500 large U.S. companies) went up 2.3% in October. The Dow Jones Industrial Average rose 2.5%, and the Nasdaq 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 the bond market) gained 0.6% in October. The 10-year Treasury yield (the interest rate on government bonds) ended the month lower at 4.08%.
International developed markets gained 1.1% in U.S. dollar terms using the MSCI EAFE index, while emerging markets 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 stayed stable and rose slightly to 99.8.
Bitcoin 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 (which measures inflation) was reported late because of the government shutdown. It 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 (COLA), which will be 2.8% in 2026.
Other economic data, such as the monthly jobs report, has been delayed due to the government shutdown.

Markets were not bothered by the government shutdown

October started with the government shutdown, which is now approaching the longest on record. This happens when Congress cannot 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 hardships for many federal workers and their families, it’s important to keep things in perspective when it comes to our investments. Looking at history, government shutdowns have not had lasting negative effects on financial markets because government spending is usually delayed, not eliminated completely. 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 is no guarantee this will happen again, but it’s a reminder that markets often move past these events.

There are also concerns about government layoffs, known as reductions in force. Looking at the bigger economic picture, federal government employment represents only 1.8% of the total workforce. 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 economic impact remains limited.

Trade tensions created brief ups and downs

The market also experienced its sharpest one-day drop since April, driven by growing tensions between the U.S. and China over rare earth metals (materials used in electronics and other products). There was also the threat of 100% tariffs 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, markets quickly recovered after 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 happened throughout the year, with trade-related concerns causing temporary pullbacks followed by 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 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 rate cut in a row. This decision reflects the Fed’s efforts to support economic growth while managing inflation 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 policy rates, the Fed also announced it would stop shrinking its balance sheet in December. This means they would continue to buy bonds, effectively maintaining supportive monetary policy (actions taken to help the economy). Over the past three years, the Fed had 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 cost-of-living adjustment and lower rates

The Social Security Administration announced a 2.8% cost-of-living adjustment (COLA) for 2026, reflecting continued but slowing inflation. For the average Social Security beneficiary (someone receiving 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 COLA is calculated using an index (a measure) 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 portfolios for these extended timeframes, while managing withdrawal rates and adapting to changing market conditions, shows the value of comprehensive financial planning.

The bottom line? Despite government shutdowns, trade tensions, and other uncertainties, markets continued their strong performance in October. Maintaining a portfolio that can handle these challenges remains the best strategy as we approach the end of the year.

We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives.

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