Monthly Economic and Market Summary

• Markets Advance for Sixth Straight Month—The S&P 500 advanced 2.3% in October, as third quarter earnings reports continue to exceed expectations. Large cap stocks led the way, with most Big Tech names up on solid earnings reports, and in some cases, major layoff announcements.
• Federal Reserve Cuts Rates Again—As expected, the Federal Reserve (Fed) delivered a 25 basis point cut in October, following a 25 basis point cut in September. As to the balance of the year, Fed Chair Jerome Powell pushed back against expectations for another cut in December, citing it was “far from” a forgone conclusion amid conflicting data, the ongoing U.S. government shutdown and inflation risk.
• Government Shutdown Continues—The U.S. Government shutdown is entering its fifth straight week, as Democrats and Republicans remain at an impasse over federal funding. This week the government faces a deadline to fund the Supplemental Nutrition Assistance program (SNAP) which was ordered by Federal judges last Friday to be funded through emergency funding. The longer the shutdown lasts, the greater potential for disruption to the overall economy. Investors should remain focused on long-term fundamentals rather than short-term political noise
• September Inflation—The U.S. Consumer Price Index (CPI) rose 0.3% in September, or 3.0% on an annualized basis and came in slightly lower than expectations. Housing-related components were softer than expected, with rents rising just 0.1% in September, but were offset by higher gasoline prices. Excluding volatile energy and food prices, “core” prices rose just 0.2%.
• China Trade Negotiations—Last week, the U.S. and China reached their third truce since April. The biggest change is the U.S. will lower tariffs on Chinese goods from 30% to 20% in exchange for commitments from China to purchase more farm products and help reduce the flow of fentanyl. This truce is for one year. Meanwhile, China’s economy is showing signs of deceleration with reported 3Q GDP of 4.8%, marking the slowest pace of growth in a year.

The rush to gold

Gold has historically been considered a safe-haven asset during periods of macroeconomic uncertainty, as investors seek alternatives to fiat currency. Amid fears of inflation, tariffs, and slower economic growth, investors are flocking to this precious metal, which has rallied about 50% year to date. This demand has exemplified the broader “debasement trade” where bets on fiat currency erosion from unchecked U.S. debt and money printing propel hard assets like gold to record highs.

The convergence of structural tailwinds behind gold are strengthened by a depreciating U.S. dollar, down about 9% year to date, which bolsters gold’s international demand, as the precious metal is priced in dollars. Global central banks are also diversifying away from the dollar in response to de-dollarization efforts, and declining interest rates which reduce the opportunity cost of holding non-yielding assets like gold. Notably, gold ETFs have seen the strongest inflows since 2020, underscoring retail and institutional enthusiasm.

While the tailwinds appear robust, gold has seen two other breakouts over the last 50 years when investors flocked to the precious metal. It doubled in 1979-80 as investors worried that the Federal Reserve would allow inflation to erode, and in 2010-11 after the stimulative bond buying following the Great Recession in 2008 raised concerns that such actions could debase the currency. Like many assets, gold is susceptible to corrections after overzealous buying. According to Morningstar, during the period of October 1980 through February 1985, the price of gold declined 17% per year, on average. While gold carries risks and doesn’t always generate long-term growth, its strong structural support and historical role as a diversifier shows it often attracts investor attention during times of economic uncertainty.