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U.S. markets began October on a strong note, buoyed by easing trade tensions and a constructive tone in U.S.-China negotiations. Treasury Secretary Scott Bessent’s recent dialogue with Vice Premier He Lifeng set the stage for a potential meeting between Presidents Trump and Xi in the coming weeks.
Despite the ongoing government shutdown, which has delayed key data releases, in Fed Chair Jerome Powell’s speech at the NABE annual meeting, he reiterated that inflation and labor market views remain unchanged since September, while acknowledging rising downside risks to employment. He also hinted that the Fed may soon end its quantitative tightening program due to tightening liquidity conditions. On October 29th, the Fed voted to lower the federal funds rate by a quarter point to 3.75%-4.00%, as expected by the market. This move was seen by some as a hedge against a weakening labor market.
Equities continued their upward climb throughout the month, but volatility persisted. For example, news of potential U.S. software export curbs to China was largely offset by rumors of a Trump-Xi meeting, which signaled a more constructive tone on trade. Similarly, U.S. September CPI came in softer than expected, with headline inflation rising 0.3% (vs. a consensus of 0.4%), though there’s a growing divergence in price movements between tariffed and non-tariffed goods. Toward the end of the month, U.S. stocks gained further on strong early-season earnings reports, but market sentiment remains mixed.
Despite limited macro data due to the shutdown, equity markets showed strong resilience. The stock market’s continued surge suggests investor confidence in the face of geopolitical and fiscal uncertainty. Furthermore, the easing of trade tensions and Powell’s balanced tone have helped stabilize sentiment. While risks remain, the market’s ability to absorb shocks and maintain upward momentum is a positive signal.
Powell’s remarks at the National Association for Business Economics’ annual meeting underscored a key concern: the labor market is losing steam. While his outlook for inflation and the labor market have remained largely unchanged, he noted that downside risks to employment “appear to have risen,” and that labor market tightness continues to ease. However, he also noted that economic growth indicators have been somewhat stronger than expected.
Powell also mentioned that the FOMC may soon end its QT program, noting that “liquidity conditions are gradually tightening. This pivot may reflect growing concern that the labor market may not be as resilient as previously thought. While inflation remains above target, the central bank has appeared more willing to tolerate it in favor of preserving employment. This could mark a turning point in monetary policy, with implications for bond yields, equity valuations and sector rotation. Investors should be prepared for increased volatility as the Fed navigates this delicate balance.
Gold’s performance has been particularly notable as of late. Often seen as a safe haven, its sharp rise reflects investors hedging against inflation and policy uncertainty. The metal’s climb above $4,300/oz underscores the growing demand for defensive assets, even as equities continue to perform. And despite a moderate price correction below $4,000/oz in the second half of October, this dual strength in risk and safe-haven assets suggests a nuanced optimism in the market—one that acknowledges risks but sees opportunity.
Thank you for taking the time to read this edition of What To Watch, brought to you by Jon Pliner, global chief investment officer; Jim Neill, senior director; Nikki Latta, senior associate; Garrett Goniea, senior associate; Madison Rugh, analyst and the WTW Investments team.
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