October Market Update: What Happened with Markets, Government Shutdown, and Social Security

Stock markets kept doing well in October, even though there were worries about the government shutdown and new disagreements with China about trade early in the month. Many major market measures hit new record highs after bouncing back from a short time when prices moved around a lot. Bonds (which are loans investors make to companies or governments) also helped investors earn money as interest rates went down, partly because the Federal Reserve (the U.S. central bank) lowered rates for the second time in a row.

Even though markets went up, there were some problems during the month. The government shutdown (when the government temporarily stops many services because Congress can’t agree on a budget) made headlines and caused some people to worry about a recession (a period when the economy shrinks). Also, a short period of worry about tariffs (fees on imported goods) on rare earth metals (special materials used in technology) caused the biggest one-day market drop since April. But markets bounced back quickly, showing why it’s important not to panic when you see scary headlines. These events also pushed gold prices to a new record before they fell back near the end of the month.

The Social Security Administration (the government agency that manages retirement benefits for Americans) also said that benefits would increase by 2.8% in 2026 to keep up with rising prices. This is a smaller increase than in recent years and might not cover all the higher costs that many retired people face. Combined with lower interest rates on savings accounts, this shows why it’s important to have a mix of investments that can both provide regular income and grow over time.

Despite these ups and downs in markets, October showed that sticking with an investment plan that matches your long-term goals is still the best way to handle uncertainty.

Key Market and Economic Numbers

• The S&P 500 (a measure of 500 large U.S. companies) went up 2.3% in October, the Dow Jones Industrial Average (30 large U.S. companies) rose 2.5%, and the Nasdaq (focused on technology companies) climbed 4.7%. For the full year so far, the S&P 500 is up 16.3%, the Dow is up 11.8%, and the Nasdaq is up 22.9%.
• The Bloomberg U.S. Aggregate Bond Index (a measure of the overall bond market) gained 0.6% in October. The 10-year Treasury yield (the interest rate on 10-year government bonds) ended the month lower at 4.08%.
• International developed markets (wealthy countries outside the U.S.) gained 1.1% in U.S. dollar terms using the MSCI EAFE index, while emerging markets (developing countries) jumped 4.1% based on the MSCI EM index. For the full year so far, the MSCI EAFE index has gained 23.7% and the MSCI EM index 30.3%.
• The U.S. dollar index (which measures how strong the dollar is compared to other currencies) stayed about the same and rose slightly to 99.8.
• Bitcoin (a digital currency) fell somewhat in October, ending the month at $109,428.
• Gold prices ended the month lower at $3,997, after reaching a new all-time high of $4,336 earlier in the month.
• The Consumer Price Index (which measures how much prices are rising) was reported late because of the government shutdown, but showed that prices rose 3.0% compared to a year earlier in September. This report is used to calculate how much Social Security benefits will increase, which will be 2.8% in 2026.
• Other economic information, such as the monthly jobs report, has been delayed because of the government shutdown.

The government shutdown didn’t hurt markets

October started with the government shutdown, which is now close to being the longest one ever recorded. This happens when Congress (the part of government that makes laws) can’t agree on a new budget or a plan to extend the deadline. Many government offices, including those that share important economic information, have been working with very few employees since then.

While the shutdown creates real problems for many federal workers and their families, it’s helpful to keep things in perspective when thinking about our investments. Looking at history, government shutdowns haven’t had lasting effects on financial markets because government spending usually just gets delayed, not cancelled completely. The longest previous shutdown lasted 35 days during 2018 to 2019, but the S&P 500 still went up 31.5% in 2019. We can’t promise this will happen again, but it reminds us that markets often move past these events.

There are also concerns about government layoffs. Looking at the bigger picture, federal government jobs make up only 1.8% of all jobs in the country, and recent layoff notices amount to just 0.002% of total U.S. employment. While the shutdown creates real difficulties for affected workers and stops some government services, its overall impact on the economy stays limited.

Trade disagreements caused short-term market swings

The market also had its sharpest one-day drop since April, caused by growing tensions between the U.S. and China over rare earth metals (special materials used in technology), and the threat of 100% tariffs (fees on imported goods) on Chinese products. Rare earth metals represent one of China’s biggest advantages in trade discussions. China controls about 70% of global rare earth production and nearly 90% of processing capacity, which means many countries depend on China for these materials.

Despite the brief selloff (when many investors sell at once, causing prices to drop), markets quickly recovered after the White House used less aggressive language. Presidents Trump and Xi then met near the end of the month, which resulted in tensions cooling down and a 10% reduction in the tariffs imposed on China.

This pattern has happened several times throughout the year, with trade-related worries causing temporary drops followed by a market recovery. Specifically, the S&P 500 has risen 37% from its April low and has set 36 new all-time highs this year through October. Of course, the market never moves up in a straight line, so this reminds us that short periods when markets move around a lot are normal and expected.

The Federal Reserve continues lowering interest rates

At its October meeting, the Federal Reserve lowered interest rates by 0.25% to a range of 3.75% to 4.00%, marking its second rate cut in a row. This decision shows the Fed’s efforts to support economic growth while dealing with inflation (rising prices) and a weakening job market. In its statement, the Fed said that “uncertainty about the economic outlook remains elevated” and that “downside risks to employment rose in recent months.”

Market watchers think another rate cut is likely by January, with one or two additional rate cuts in 2026. Beyond changing interest rates, the Fed also announced it would stop shrinking its balance sheet (the total amount of bonds and other assets it owns) in December. This means they would continue to buy bonds, which helps support the economy. Over the past three years, the Fed has tightened policy by reducing its balance sheet by $2.2 trillion, so ending this process provides additional economic support. For investors, falling interest rates and supportive monetary policy have historically created opportunities across different types of investments.

Retired people face challenges from small benefit increases and lower interest rates

The Social Security Administration announced a 2.8% cost-of-living adjustment (an increase to help benefits keep up with rising prices) for 2026, showing that inflation is continuing but slowing down. For the average Social Security recipient, the monthly benefit will be about $2,064, an increase of only $56. While any increase helps, this modest adjustment is much smaller than the 8.7% increase in 2023, which was the largest since 1981.

The challenge for retired people is that the cost-of-living adjustment is calculated using a measure that may not reflect the actual price increases they experience. Healthcare costs, housing expenses, and other categories that retired people spend a lot on have often risen faster than the overall measure. For example, medical care services rose 3.9% over the past year, health insurance increased 4.2%, and home insurance climbed 7.5%. Food prices increased 3.1%, but meat, poultry, and fish rose 6.0%.

With people living longer—many retired people will live into their 90s—planning for retirement periods that could last several decades requires investments that can provide both regular income and growth. Understanding how to structure investment portfolios for these extended timeframes, while managing how much money you take out and adapting to changing market conditions, shows the value of comprehensive financial planning.

The bottom line? Despite government shutdowns, trade disagreements, and other uncertainties, markets continued doing well in October. Maintaining an investment portfolio that can handle these challenges remains the best approach as we get closer to the end of the year.