October Market Review: Trade Policy, Government Operations, and Retirement Planning

Sean Gross, CFP®, AIF® | Co-Founder & CEO

November 4, 2025

Major stock indices posted solid gains in October and reached fresh record highs, even as investors navigated uncertainty surrounding government operations and evolving trade policy with China. Fixed income assets also delivered positive returns as yields fell, supported in part by the Federal Reserve's continued monetary easing.

The month presented notable challenges alongside these gains. Ongoing disruptions in government operations dominated news cycles and sparked concerns about economic growth, while tensions over rare earth minerals triggered the sharpest daily market retreat since April. Yet the swift recovery demonstrated why investors benefit from avoiding reactive decisions based on headlines. Gold surged to unprecedented levels during this period before moderating as the month concluded.

The Social Security Administration revealed a 2.8% benefit adjustment for 2026, representing a more moderate increase than recent years that may fall short of covering actual expense growth for many beneficiaries. When considered alongside declining yields on cash investments, this development highlights why portfolios need to balance current income needs with long-term appreciation potential.

October's results demonstrate that staying committed to a strategy designed for long-term objectives continues to be the most effective way to manage market uncertainty.

Key Market and Economic Drivers

• The S&P 500 rose 2.3% in October, the Dow Jones Industrial Average 2.5%, and the Nasdaq 4.7%. Year-to-date, 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 gained 0.6% in October. The 10-year Treasury yield 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. Year-to-date, the MSCI EAFE index has gained 23.7% and the MSCI EM index 30.3%.
• The U.S. dollar index stabilized 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 was reported late due to the government shutdown but showed that prices rose 3.0% on a year-over-year basis 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.

Government operations disruption had limited market impact

The month opened with disruptions to government operations now nearing historic duration records. This situation arises when Congress cannot reach agreement on budget legislation or deadline extensions. Numerous agencies, including those responsible for releasing key economic indicators, have maintained only skeleton staffing since then.

These disruptions create genuine hardships for affected workers and their families, yet it's crucial to maintain appropriate context regarding portfolio implications. Past episodes have typically not produced lasting effects on financial markets, as government expenditures tend to be deferred rather than eliminated. The longest previous episode spanned 35 days during 2018 to 2019, after which the S&P 500 proceeded to advance 31.5% in 2019. While past results don't guarantee future outcomes, this history suggests markets frequently move beyond these events.

Workforce reductions have also generated concern. Federal employment constitutes just 1.8% of total U.S. employment, and recent reduction notices represent merely 0.002% of the national workforce. Though these disruptions create real challenges for affected individuals and interrupt services, their broader economic influence remains constrained.

Trade policy developments sparked temporary market reaction

Markets experienced their most significant single-day retreat since April amid heightened tensions between the U.S. and China concerning rare earth minerals, with the possibility of 100% tariffs on Chinese goods. These minerals represent a critical leverage point in trade negotiations. China accounts for roughly 70% of worldwide rare earth production and nearly 90% of refining capacity, creating substantial supply chain dependencies.

Markets rebounded swiftly after more measured communication from the White House. A late-month meeting between Presidents Trump and Xi led to reduced tensions and a 10% reduction in tariffs applied to China.

This dynamic has occurred repeatedly throughout the year, with trade-related uncertainties causing brief declines before markets regained ground. The S&P 500 has climbed 37% from its April trough and established 36 fresh record highs this year through October. Markets never advance in a linear fashion, so these episodes remind us that temporary periods of volatility represent normal market behavior.

Federal Reserve continues accommodative policy shift

The Federal Reserve reduced interest rates by 0.25% to a range of 3.75% to 4.00% at its October gathering, representing the second consecutive reduction. This action reflects efforts to sustain economic expansion while balancing inflation considerations and softening employment conditions. The Fed's statement acknowledged that "uncertainty about the economic outlook remains elevated" and that "downside risks to employment rose in recent months."

Market pricing indicates another reduction appears probable by January, with one or two additional reductions possible in 2026. Beyond rate policy, the Fed announced it would conclude its balance sheet reduction in December. This means continued bond purchases, effectively maintaining accommodative conditions. After three years of policy tightening that reduced the balance sheet by $2.2 trillion, halting this process provides further economic support. Declining rates and supportive monetary conditions have historically created favorable environments across asset classes.

Retirement income considerations amid modest benefit increases and declining yields

The Social Security Administration announced a 2.8% benefit adjustment for 2026, indicating continued but moderating inflation. For typical beneficiaries, monthly payments will reach approximately $2,064, representing an increase of just $56. Though helpful, this adjustment appears modest compared to the 8.7% increase in 2023, which marked the largest since 1981.

The difficulty for beneficiaries is that the adjustment calculation uses an index that may not accurately capture their actual cost experience. Healthcare expenses, housing costs, and other categories representing significant portions of retiree budgets frequently increase faster than the overall measure. Medical care services rose 3.9% over the past year, health insurance advanced 4.2%, and home insurance climbed 7.5%. Food prices increased 3.1%, though meat, poultry, and fish rose 6.0%.

With longevity continuing to extend—many beneficiaries will reach their 90s—preparing for multi-decade retirement periods requires portfolios capable of generating both current income and long-term growth. Understanding how to construct portfolios for these extended timeframes, while managing distribution rates and adjusting to evolving market environments, emphasizes the importance of thorough financial planning.

The bottom line? Markets delivered strong October results despite disruptions in government operations, trade policy developments, and other uncertainties. Staying committed to a flexible portfolio designed for long-term goals remains the most effective approach as the year draws to a close.