MONTH IN REVIEW

October was another positive month for key indices as NDX led the way.

Equities continued to rally in October for a sixth straight month.  Some of the key drivers for the continued rise in asset prices included increasing odds of multiple interest rate cuts over the next several months, moderating inflation, and strong earnings prints.  Tech led the way once again in October, as the AI-theme and strong earnings helped support NDX.  Following a return of 3.64% in September (total return), SPX (the S&P 500) returned 2.34% (total return) in October.  After returning 5.47% (total return) in September, NDX (the Nasdaq-100) returned 4.81% (total return) in October.  The Russell 2000 returned 1.81% in October after a gain of 3.11% in September.  SPX & NDX held their key moving averages in October, which we will illustrate later in this note. 

High Yield, International, Real Estate and Bitcoin were mixed in October.  Following a return of 0.82% in September (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.16% (total return) in October.  Following a return of 1.98% in September (total return), the MSCI EAFE Index returned 1.19% in October.  Following a return of 0.10% in September (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned -2.44% (total return) in October.  Bitcoin returned-3.94% in October (Bloomberg Bitcoin Index) after returning 5.54% in September.  Through October, Bitcoin has gained roughly 17.5% YTD.

Treasuries rallied modestly in October as interest rates were cut by 25bps: the FOMC lowered its policy rate to a range of 3.75% – 4.00%.   This was the second consecutive cut of 25bps.  In addition to the rate cut, fixed income markets were mostly driven by weaker labor market conditions, moderating inflation, and expectations of future rate cuts.  The short-end of the curve slightly outperformed during the month.  The 10-yr closed near 4.08% to end October, slightly lower than at the end of September, and under the lower end of its important 4.20% – 4.50% technical range.  The 30-year Treasury yield ended October at roughly 4.65%, down from 4.73% at the end of September.  Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so.  Additionally, the 2/10 Treasury yield spread narrowed slightly in October, as was the case in September.  The 2/10’s record-long inversion came to an end in the second half of 2024.

Another notable datapoint from October was the release of September’s inflation data: Core CPI printed 0.2% M/M, matching the consensus.  PPI printed 0.4% M/M, above the 0.2% consensus.  PCE printed 0.2%, matching the consensus.  Core PCE printed 0.2%, also matching the consensus. 

The next Fed meeting will take place on 12/9-12/10, and there is a 25bps cut expected.  Looking forward, and as of the end of October, the market is pricing in a total of 25bps of cuts for the remainder of 2025 (one cut), and 75bps in 2026 (three cuts).  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has signaled that it is ready to start cutting rates despite inflation remaining stuck above the 2% target.  Furthermore, the weaking employment picture will play a major role in future cuts.

According to FactSet, the trailing 12-month P/E ratio for SPX is 29.3 which is above the 5-year average (25.1), and above the 10-year average (22.8).  The forward 12-month P/E ratio for SPX is 22.9, which is above the 5-year average (19.9), and above the 10-year average (18.6).  Additionally, per FactSet, SPX is reporting Y/Y revenue growth of 7.0% for Q3 2025, which is above the estimate of 6.3% on 9/30.  Finally, per FactSet, SPX is reporting Y/Y earnings growth of 10.7% for Q3 2025, which is above the estimate of 7.9% on 9/30.

Within commodities and currencies: WTI Crude Oil fell in October by roughly 0.4% to close near $61/bl.  Gold rose by 3.75% in October to close near $4,025/oz as its historic run in 2025 continued.  Finally, the USD/DXY rose M/M and closed out October near 99.80.  2025 has been one the weakest years for the USD in several decades.

VOLATILITY UPDATE

After closing out September near 16.25, the VIX Index finished October near 17.50 as volatility slightly rose but remained subdued.  It did briefly spike intramonth to 29 before falling back under 20.  The VIX has mostly remained sub-20 since Q2.  The 12-month high of the VIX Index was registered on 4/7/25 at 60.13.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  And in 2024, the VIX averaged near 15.50.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities.  It is thought of as “The VIX Index of the Bond Market.“   After closing out September near 78, the MOVE Index closed out October near 66.  The MOVE continues to print very low numbers.  The 12-month high of the MOVE Index was registered on 4/8/25 at 139.88.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the case over the past 5 months.

NOTABLE CHARTS

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching US trade policy developments, inflation, earnings, yields, and fiscal policy.  On the inflation front, October’s CPI will be released on 11/13, and PPI will be released on 11/14.  Finally, the next FOMC meeting will take place on 12/9-12/10, and the market is expecting a 25bps cut.