October 2025 Market Commentary

October was dominated by the U.S. federal government shutdown, which halted all non-essential services and furloughed hundreds of thousands of workers, as political gridlock reached new heights. Despite the dysfunction in Washington, financial markets remained open and optimistic. The S&P 500 rose 2.3% in October, achieving its sixth consecutive month of gains, even as markets experienced volatility mid-month amid varied corporate earnings results.

Once again, technology led sector performance advanced 2.8% as the “Magnificent 7” names, which includes Apple, Google, Microsoft, and other mega-cap peers, reported quarterly results that exceeded expectations. Energy followed closely with a 2.6% return, buoyed by improving sentiment after President Trump brokered a peace deal between Israel and Palestine, and renewed energy trade agreements with European and Asian partners. Consumer Staples lagged the broader market, slipping 0.6% during the month. Among major U.S. indices, the tech-heavy Nasdaq 100 outperformed with a 4.7% gain, while the Dow Jones Industrial Average added 2.5%. This was its strongest October showing since 2022, as tariff-related concerns faded and industrial earnings remained solid.

U.S. equity valuations remain stretched, propelled by the ongoing adoption and integration of artificial intelligence (AI) across industries. However, questions remain about the real economic value of AI and the deepening interdependence among major industry players. Many are now tied together through multitrillion-dollar, cross-financed projects that increasingly blur the line between innovation and circular investment. Overall, Q3 earnings were exceptionally strong, as 55% of companies reported earnings, surpassing expectations by at least one standard deviation. This is significantly higher than historical averages and continues to fuel optimism in the markets.

One high-profile example taking place on October 13, includes NVIDIA making a non-voting equity investment in OpenAI. This was part of a $100 billion multistage deal to deploy 1 gigawatt of NVIDIA-powered computing capacity, which was funded by the very capital NVIDIA had just invested. In turn, OpenAI announced a similar agreement with Broadcom to design custom AI chips. Oracle, another key infrastructure provider with a debt-to-equity ratio exceeding 450%, is now expected to raise roughly $1 trillion over the next five years to meet cloud-computing commitments, totaling 26 gigawatts. With Citibank analysts estimating current buildout costs to be $50 billion per gigawatt, the scale and sustainability of these projects is becoming increasingly difficult to justify, especially given the ongoing U.S. power-supply shortfall.

The federal government’s growing involvement in the AI economy has also raised questions about the private sector’s capacity to finance this expansion independently. In early October, the U.S. government acquired a 10% equity stake in Intel. A few weeks later, the Department of Energy announced a $1 billion partnership with AMD to build two supercomputers dedicated to research in nuclear energy, oncology, and national security. With nearly 40% of U.S. GDP year-to-date attributed to AI-related investment, the sector’s trajectory will be critical to monitor in the years ahead.

Simultaneously, signs of AI-driven labor displacement are emerging. Amazon announced plans to eliminate 14,000 corporate positions. This elimination plan is significantly smaller, compared to Reuters’ earlier estimation of 30,000. However, Reuter’s predicts Amazon could avoid hiring 160,000 employees in the future, and replace up to 500,000 roles with robotics by 2027. In a labor market saturated with college-educated workers yet short of skilled tradespeople, automation increasingly appears to be viewed as the solution.

Despite the shutdown, the Bureau of Labor Statistics (BLS) was recalled to release September’s CPI data ahead of the October Federal Open Market Committee (FOMC) meeting. The report showed a modest 0.3% monthly increase, supporting the Federal Reserve’s decision to deliver another 25 basis-point rate cut—its second this year—bringing the federal funds rate to 3.75%–4.00%. While two governors dissented (one favoring a 50 basis-point cut and another preferring no change), policymakers emphasized that future easing is not assured, leaving the December meeting in focus.

Trade policy remained a major theme throughout October. Six months after the “Day of Liberation,” the administration continued to renegotiate global trade relationships. In late October, President Trump’s visit to Asia resulted in new agreements with Cambodia, Japan, South Korea, and China. Following meetings between Treasury Secretary Bessent and his Chinese counterpart, the U.S. agreed to reduce tariffs on Chinese imports from 57% to 47%. This exchange is for one-year suspensions on rare-earth and shipping levies and a 50% reduction in fentanyl-related tariffs. While these developments signal incremental progress, decades of deeply intertwined U.S. - China trade ties will take time to unwind and redefine.

The ongoing federal government shutdown has paused nearly all economic data releases, with the Consumer Price Index (CPI) being the lone exception ahead of the October FOMC meeting. This lack of visibility comes at a particularly challenging time, as the U.S. labor market is undergoing a rapid structural transformation driven by artificial intelligence and shifting workforce demographics.

Supply and demand are two major trends that are shaping the labor market this year. On the supply side, the decades-long cultural emphasis of obtaining a college degree has dramatically expanded the pool of white-collar workers. The number of Americans who hold a bachelor’s degree have more than doubled since 1990. Data shows 4 million graduates per year, while the share of adults with a college degree has climbed from 25.6% in 2000 to 37.5% in 2025. This oversupply has inflated the cost of higher education. Tuition and fees have nearly tripled over the past six decades, outpacing general inflation, and have diluted the value of certain degrees.

A prime example lies in the field of computer science. Once seen as a ticket to lucrative tech careers, the field now faces a glut of graduates, just as AI systems are capable of writing nearly 80% of code autonomously. As a result, human coders are increasingly shifting toward systems architecture and oversight, rather than development itself. The imbalance between expectations and opportunities underscores the growing disconnect between education trends and labor market realities.

On the demand side, job creation pace has slowed significantly compared to last year. After several months in 2024 of employment gains exceeding 150,000 per month, September 2025 only saw 22,000 new jobs added. While this decline initially appears worrisome, part of the slowdown stems from policy-driven changes. The federal government’s crackdown on illegal immigration has reduced the labor force by nearly 2 million workers through deportations and voluntary departures. Analysts estimate that, under current conditions, the U.S. economy needs to add between 40,000 and 50,000 jobs per month simply to maintain equilibrium.

At the same time, AI-driven automation is displacing many entry-level white-collar roles, especially in human resources, customer service, and legal support roles such as paralegals. In contrast, blue-collar and trade professions continue to face chronic shortages, even as re-shoring and infrastructure initiatives accelerate. To bridge these gaps, companies from automotive manufacturing to logistics and delivery are turning to robotics and autonomous systems to offset the tightening supply of skilled labor.

The result is a labor market increasingly polarized between knowledge-driven automation and machine-driven production, which is a divergence that will define employment, productivity, and wage growth in the years ahead.

The CPI for September rose 0.3% month-over-month on a seasonally adjusted basis, following August’s 0.4% increase. On a year-over-year basis, CPI inflation advanced 3.0%. The gasoline index rose 4.1% in September, accounting for the largest share of the monthly increase as the broader energy index climbed 1.5%.

Core CPI (excluding food and energy) increased 0.2% in September, a moderation from the 0.3% pace observed in each of the prior two months. Over the past 12 months, core CPI has risen 3.0%. Among key components, shelter increased 3.6% year-over-year, while medical care rose 3.3%, household furnishings and operations gained 4.1%, recreation advanced 3.0%, and used cars and trucks climbed 5.1%.

The September CPI data was compiled under atypical conditions, due to the ongoing federal government shutdown, which forced the BLS to alter its usual methodology.

Normally, the BLS relies on direct data collection, gathering prices from retailers, landlords, and service providers through in-person visits or digital surveys. These field economists record prices across thousands of goods and services, from groceries and rent, to clothing and auto repair.

However, with most field staff furloughed, BLS was unable to collect data in person or by phone. As a result, key CPI components such as shelter, food, and transportation may not fully reflect current market conditions. In the absence of direct observations, the BLS uses imputed data, estimating missing prices based on historical trends or related categories.

While imputation can bridge short-term gaps, extended reliance on it reduces data accuracy. This approach mirrors techniques used during the COVID-19 pandemic, when the BLS substituted prices for travel-related categories using proxy indexes. If the shutdown persists, a growing portion of the CPI will depend on these imputations, reducing its reliability for both monetary policy and inflation-linked securities (TIPS).

It remains unclear whether this leads to an underestimation or overestimation of inflation. However, consensus on Wall Street suggests the report may overestimate actual inflation, implying that price pressures were somewhat weaker than reported.

The longer the federal government shutdown persists, the fewer economic data releases will be available, and the reliability of existing data may further decline. Assuming the shutdown ends in early November, the October 2025 CPI inflation report is scheduled for November 13, but its release is at risk of being delayed or canceled entirely.

Federal Reserve Chair Jerome Powell offered little reassurance during his recent commentary on the effects of a prolonged shutdown on monetary policy. He explained that policymakers are relying on “every scrap of data we can find,” including private sources, internal Federal contacts, and in-house estimates, since typical government reports are delayed or suspended. Powell illustrated this with a metaphor: “What do you do if you’re driving in the fog? You slow down.” This, he indicated, signals that the Federal Reserve will proceed cautiously in the absence of complete information. Following the October rate cut, Powell emphasized that a further cut in December is not guaranteed, and the missing or delayed data will likely temper any immediate action. The market reacted quickly: the CME FedWatch Tool showed the probability of a 25-basis-point cut fell from 86.3% on October 3, to 66.8% by the end of October.

Powell also announced that quantitative tightening (QT) will end on December 1. Under QT, the Federal Reserve has been reducing its balance sheet by allowing treasuries and mortgage-backed securities (MBS) to mature without reinvestment, thereby draining liquidity from the financial system. Ending QT marks a transition to neutral liquidity policy, as the Federal Reserve will stop letting securities roll off its balance sheet. This effectively sets a floor under system reserves, easing stress in repo and money markets. Once reverse repos (RRPs) approach zero, any further QT would reduce bank reserves directly, tightening liquidity and potentially increasing funding stress. Powell’s decision to end QT reflects the Federal Reserve’s desire to avoid a repeat of the September 2019 repo market turmoil, when a scarcity of reserves caused overnight rates to spike.

In mid-October, Zions Bancorp and Western Alliance disclosed unexpected credit losses tied to allegedly fraudulent or misrepresented loans. This sparked a sharp selloff across regional banks and reigniting concerns about credit quality in the private lending ecosystem. Zions Bancorp announced a $50 million charge-off on two commercial and industrial loans made through its California Bank & Trust subsidiary and subsequently filed suit to recover more than $60 million from those borrowers. Likewise, Western Alliance initiated legal action over a $100 million exposure related to fraudulent collateral documentation. The disclosures sent shockwaves through the market. Zions Bancorp shares fell roughly 13% in a single day and Western Alliance declined 10% to 11%. The broader regional bank index weakened as investors reassessed credit exposures that had largely flown under the radar.

Both banks’ troubled loans were linked to nontraditional or private-credit-style borrowers, heightening concerns about hidden risks and weak disclosure practices. These loans were often made through distressed-credit funds, real estate vehicles, or private-equity-backed borrowers rather than traditional corporates. The backdrop was already fragile following recent bankruptcies, such as Tricolor Holdings and First Brands, which revealed unexpected losses in less-regulated corners of the credit market.

Tricolor Holdings, a used-car retailer and subprime auto lender operating more than 60 dealerships across six states including Texas, California, and Arizona, has specialized in lending to “underbanked” borrowers, many of whom were immigrants. The company’s bankruptcy followed allegations of fraudulent “double-pledging” of auto loan portfolios as collateral for separate credit lines at different banks, along with broader data irregularities. This is now under investigation with the Department of Justice. This episode reinforced JPMorgan CEO Jamie Dimon’s warning: “When you see one cockroach, there are probably more.”

According to The Guardian, the reemergence of auto loan delinquencies and fraud has become a mounting concern. Car prices surged during the pandemic as supply constraints collided with inflation and rising rates. By 2023, purchasing a new car required 42 weeks of income, up from 33 weeks before the pandemic, according to Cox Automotive. According to J.D. Power, in October 2025, the average new vehicle price surpassed $50,000 for the first time, up 34% in real terms from 2007, while inflation-adjusted wages grew only 11.9%. The stress in affordability fueled risky lending practices, as some borrowers, aided by credit-repair agencies, temporarily inflated their credit scores to qualify for auto loans, only to default shortly thereafter. As a result, car repossessions surged to 1.73 million vehicles in 2024, the highest since 2009, up 16% year-over-year and 43% from 2022.

Historically, auto loans and credit card receivables were favored by private credit investors for their high yields and low default histories. However, high-profile bankruptcies such as Tricolor and First Brands have exposed fragilities in this once-stable asset class. The private credit market, which has ballooned as traditional banks pulled back from lending post-2008, now faces scrutiny. Companies seeking flexible financing structures have flocked to private credit funds, helping global private credit AUM grow rapidly—Moody’s projects it will reach $3 trillion by 2028. Yet as competition for deals intensifies, lenders are stretching further down the credit spectrum to deploy capital, increasing systemic risk.

Because private-credit exposures are illiquid, opaque, and often supported by collateralized credit lines, any sign of misrepresentation, like those revealed at Zions Bancorp and Western Alliance, can trigger cascading effects. These events prompted widespread re-pricing of risk, tightening of lending standards, and heightened caution across credit markets. The panic underscored a growing realization: as private credit expands into riskier territory, isolated frauds or defaults can quickly erode confidence in an increasingly interconnected segment of the financial system.

November is expected to continue the volatility seen in October. A prolonged federal government shutdown will likely keep markets on edge and pressure consumer spending during the critical holiday season for retailers and discretionary purchases. The lack of reliable labor market data adds further uncertainty for consumers, businesses, and investors. Additionally, TSA agents and air traffic controllers working without pay could exacerbate airport delays during the busy travel period, putting added stress on airlines and travel companies. Meanwhile, markets await the U.S. Supreme Court decision on the legality of Trump-era tariff policies. A ruling that invalidates the $2.5 trillion in tariff revenue generated year-to-date could create significant disruption, particularly for companies that have spent billions adjusting their supply chains. Businesses would then face quick decisions about whether to reverse changes or continue on the new path of reshoring industry.

Despite these macro concerns, we remain focused on the industries driving the AI buildout. Electrical components, utilities, and other inputs required to build and maintain hyperscale data centers remain choke points with relatively attractive valuations. The scaling ability of these sectors will determine whether the momentum seen in semiconductor manufacturers can be sustained. While valuations are historically high, the competitive landscape makes scale and dominance more important than absolute price levels.

Finally, the Federal Reserve’s decision to end QT is an important step toward stabilizing financial markets that rely on liquidity. We do not anticipate an immediate shift from QT to QE, but a neutral stance into early 2026 will allow the Federal Reserve and the market to better assess the overall health of the economy and financial system.

** This commentary is provided for informational and educational purposes only and should not be construed as investment advice, an offer, or a solicitation to buy or sell any security. The views expressed are based on current market conditions and are subject to change without notice. Past performance is not indicative of future results. Index performance is shown for illustrative purposes only; indices are unmanaged, do not reflect fees or expenses, and are not directly investable. Any forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and assumptions. Investors should consult with a qualified financial professional before making any investment decisions.

***Some or all portions of this commentary were prepared with the assistance of artificial intelligence (“AI”) and large language models. The information generated by these tools has not been independently verified, and while reasonable care has been taken to ensure accuracy, Stonemark Wealth Management does not guarantee the completeness or reliability of any AI-assisted content. This material is provided for informational purposes only and should not be construed as individualized investment advice.