In October, investors looked past Washington’s gridlock and focused on fundamentals. Markets rose as corporate earnings exceeded expectations, the U.S. Federal Reserve (Fed) rate-cutting cycle gained traction, and geopolitical tensions, including relations with China, eased. In short, resilient underlying growth outweighed headline uncertainty.
In this edition of Insights, we explore three themes that shaped the month:
- The prolonged U.S. government shutdown has created fiscal uncertainty, but fundamental economic strength has remained resilient.
- Corporate earnings continued to surprise to the upside, pushing U.S. stocks to new highs.
- Ongoing U.S.-China trade de-escalation, featuring tariff reductions and a rare-earth elements agreement, lowered geopolitical risk, partially removing a market headwind.
Monthly Market Wrap
Market performance in October reflected investors’ renewed confidence in both corporate strength and monetary support.
Fixed Income Markets
- Global Bonds fell 0.3%, reflecting modest weakness abroad even as U.S. rate cuts supported domestic bond prices. European bonds lagged amid renewed leadership tension in France and the U.K.
- U.S. Taxable Bonds gained 0.6% as income-oriented investors sought stability amid uncertainty over the government shutdown, underscoring the asset class’s role as a defensive anchor amid periods of political noise.
- U.S. Tax-Exempt Bonds increased by 1.2% as a wave of new issuances met strong investor demand, as municipal credit quality remains healthy and yields remain attractive.
- Floating-Rate Loans added 0.5%. Despite isolated defaults that briefly caught headlines, the broader loan market remains in good shape.
- International Bonds declined 1.0%, driven by governmental friction in France that triggered an early-month sell-off in the European government bond market.
Equity Markets
- Global Equities advanced 2.2%, as the U.S. economy largely sustained its forward momentum, and the trade dialogue with China became constructive.
- U.S. Large-Cap Equities rose 2.2%, powered by a better-than-expected start to earnings season, especially from the technology sector.
- U.S. Mid-Cap Equities declined 0.8% as they continue to be viewed as less directly supported by AI enthusiasm or rate-cut momentum.
- U.S. Small-Cap Equities gained 1.8% amid lower rates, which typically provide a tailwind for smaller, more domestically focused businesses.
- U.S. International Equities increased 2.0%, boosted by the election of a pro-market prime minister in Japan.
- Emerging Market Equities led performance, rising 4.2%, as expectations grew for tariff reductions and a relaxation of export restrictions on critical technology components after a de-escalation in U.S.-China trade tensions.
The Ongoing Government Shutdown
The U.S. government shutdown continued through October, creating headline uncertainty but little lasting market impact. Key agencies operated at reduced capacity, several services were suspended, and legislative negotiations remained at a standstill.
The U.S. government reopening timeline remains uncertain, but a resolution could occur sometime over the coming month as pressure mounts. This timeframe is often cited for its proximity to various deadlines and events that may influence the timing of the talks and the passage of a funding measure.
While investors have grown accustomed to legislative brinkmanship, markets continue to focus on what matters most: economic growth, including steady consumer spending and business investment, alongside corporate profitability. Historically, shutdowns have produced short-term equity volatility but limited long-term consequences for diversified investors.
In fixed income, the shutdown has delayed the release of some economic data, complicating the Fed’s signaling process. Yet yields still fell, reflecting confidence that rate cuts will support growth once fiscal operations resume.
At Sage, we view diversification as the best defense against episodic political risk. By maintaining exposure across asset classes and regions, portfolios can remain aligned with long-term goals rather than short-term uncertainty.
Favorable Start to Earnings Season
The Q3 2025 earnings results once again exceeded expectations, underscoring the resilience of U.S. companies in a moderating economy.
By October 31, more than half of S&P 500 companies had reported results, with 83% beating earnings expectations by more than 9%. Technology and Communication Services sectors, particularly among the “Magnificent Seven” large-cap tech companies, continued to drive index-level growth as investment in AI infrastructure (chips, cloud services, data centers) accelerated.
Strong results extended beyond technology. Many companies managed higher input costs and tariff pressures by improving productivity and leveraging pricing power. Small-cap equities benefitted from the Fed’s rate cuts, which tend to ease financing costs for smaller, economic growth-oriented firms.
In our view, this breadth of performance reinforces the case for balance. We believe that investors gain by maintaining exposure not only to the dominant technology leaders but also to sectors and capitalizations positioned to thrive as the effects of rate cuts ripple through the economy. This balance aims to give investors what we believe to be the best chance to meet their financial goals over time.
Waning Trade Tensions
October ended with a notable de-escalation in U.S.-China trade tensions. A meeting between President Trump and President Xi in South Korea produced a compromise: the U.S. reduced the overall tariff rate on Chinese goods from 57% to 47%, and China agreed to a one-year suspension of its recently imposed export restrictions on rare earth materials while committing to a large-scale purchase of soybeans from U.S. farmers.
These steps materially reduced the risk of a full-blown trade war. Markets responded positively as fears of supply chain disruption eased and global trade flows stabilized.
Oil prices declined slightly on the news, reflecting a reduced geopolitical risk premium, an important development for inflation trends as rate expectations are lowered. Together, these outcomes improve the backdrop for global equities, particularly in manufacturing and technology supply chains.
Closing Thoughts
October reminded investors that markets respond more to earnings and monetary policy than to current affairs. Strong profits, rate cuts, and easing trade tensions outweighed the uncertainty of a government shutdown.
At Sage, we continue to position portfolios for resilience across environments—balancing opportunity with discipline, and diversification with conviction. By avoiding overreliance on any single driver of returns, we aim to ensure each portfolio remains aligned with our clients’ unique goals, time horizon, and risk tolerance.
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The information and statistics contained in this report have been obtained from sources we believe to be reliable, but cannot be guaranteed. Any projections, market outlooks, or estimates in this letter are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks, or assumptions should not be construed to be indicative of the actual events that will occur. These projections, market outlooks, or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product, or any non-investment-related content referred to directly or indirectly in this newsletter will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer reflect current opinions or positions. All indexes are unmanaged, and you cannot invest directly in an index. Index returns do not include fees or expenses. Actual client portfolio returns may vary due to the timing of portfolio inception and/or client-imposed restrictions or guidelines. Actual client portfolio returns would be reduced by any applicable investment advisory fees and other expenses incurred in managing an advisory account. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Sage Financial Group. To the extent that a reader has any questions regarding the applicability above to his/her situation or any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. Sage Financial Group is neither a law firm nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Sage Financial Group’s written disclosure statement discussing our advisory services and fees is available for review upon request.
