October 2025 Market Recap

Here are the latest market insights from the Goldman Sachs Wealth Management Investment Strategy Group (ISG). 

Despite renewed trade tensions between the United States and China, as well as a spike in the VIX (Volatility Index) above 25, the S&P 500 posted gains for the sixth consecutive month in October, reaching a new record high. 

Here’s a recap on what happened in the market and economy.

The markets: a new high with a dose of volatility

A robust start to the third-quarter earnings season contributed to positive market sentiment, resulting in a 2.3% return of the S&P 500 over the month. However, this gain was not without volatility.

Early in October, President Donald Trump threatened to impose an additional 100% tariff on Chinese imports following Beijing’s decision to tighten export controls on rare earth elements and critical minerals. This development initially led to a 3% decline in the S&P 500, though the index subsequently recovered as both countries worked toward a compromise.

Investor optimism was moderated by concerns regarding market bubbles, extended positioning, uncertainty stemming from the lack of economic data during the government shutdown, and hawkish remarks from Fed Chair Jerome Powell after the October Federal Open Market Committee (FOMC) meeting.

International markets performed strongly, with MSCI EAFE returning 3.4% and MSCI Emerging Markets returning 4.2%.

As trade tensions escalated early in the month, investors moved toward US Treasuries for safety but reduced their positions following Chair Powell's hawkish press conference later in October. Ultimately, yields on 10-year US Treasuries fell by 7 basis points for the month. The US dollar appreciated against all major currencies, with the DXY index rising by 2.1% month over month.

The economy: labor market remains relatively stable

The US government shut down on October 1 after Congress failed to pass funding bills before the September 30 deadline. Due to the shutdown, which was the longest in US history, non-essential federal employees were furloughed, most government agencies were closed, and nearly all federal economic data releases have been delayed.

The estimated impact on fourth quarter GDP growth is approximately 0.2 percentage points per week. During the shutdown, markets and the Fed relied primarily on private-sector data, creating uncertainty about current economic conditions. Available data indicate that the labor market remains relatively stable and inflation pressures are contained.

However, layoff announcements at several large companies have led to concerns about labor market stability. While an increase in layoffs is not yet reflected in state-level unemployment claims, risks to the outlook remain on the downside.

Against this backdrop, the Fed cut the policy rate by 25 basis points at the October meeting, consistent with market expectations. Chair Powell also noted that a rate cut in December was not guaranteed.

Still, ISG expects the Fed to deliver another 25-basis-point rate cut in December, as ISG anticipates a modest further weakening in the labor market through year-end. However, with economic growth likely to remain close to trend next year, ISG has lowered its forecast on the number of rate cuts in 2026 from three to two. 

Want more market insights?

Goldman Sachs Ayco’s Immanuel Tan discusses the impact of robust corporate earnings results on market performance, the latest on core inflation, and the path forward for the Fed in the latest Spotlight video.