Your Capital Markets Snapshot: Fed Cuts Rates Amid Shutdown and Trade Talks

Markets ended October near record highs, shrugging off several potential headwinds including a more hawkish Federal Reserve, ongoing government shutdown, and high-stakes U.S.-China trade negotiations. The Fed cut rates by 25 basis points as expected but signaled further cuts, especially in December, are far from certain. Markets had previously priced in the near certainty of a December rate cut, so the Fed’s news led to a sell-off in bonds and a rise in Treasury yields as expectations adjusted. The Trump-Xi meeting resulted in a partial easing of trade tensions, with both sides agreeing to roll back some tariffs and trade restrictions, which should provide relief to supply chains and corporate margins. Despite the government shutdown delaying key economic data, private sector indicators suggested underlying economic resilience. Corporate earnings were robust, with most S&P 500 companies beating expectations, especially in large-cap tech, which has helped propel major equity indexes to new highs. However, market breadth narrowed and volatility remains elevated, with small- and mid-cap stocks lagging their large cap peers. The AI-driven rally in tech continues, though some concerns about overvaluation are circulating. Overall, while volatility picked up, the market rally remained intact. Caution is warranted heading into November with the government shutdown still looming and increased uncertainty on the future actions of the Fed.