October Market Outlook: Market Resilience Through the Shutdown and Fed Shift
- Brad Tremitiere CIO
- 1 day ago
- 5 min read
October Market Outlook: Market Resilience Through the Shutdown and Fed Shift
Here we are again — another government shutdown. As of October 1, large parts of the federal government have officially gone dark. Headlines are filled with words like “crisis” and “chaos,” and the usual warnings are back about what this might mean for the economy and the market.
But the truth is, we’ve seen this movie before. Since 1980, there have been twenty-one government shutdowns, and none have caused lasting damage to the market.
According to research from Invesco, the S&P 500 Index has posted positive returns in 12 of the 21 government shutdowns since 1976, with an average gain of 0.1% during those periods. Shutdowns may slow government activity, but they’ve rarely caused meaningful or lasting volatility. The economy keeps moving, financial systems continue to operate, and investors typically look through the noise once funding debates end.
The Bigger Picture: Headlines vs. Fundamentals
Shutdowns tend to be more about politics than economics. Essential operations including Social Security payments, Treasury debt obligations, and military pay will continue. What we’re seeing now is not a debt ceiling crisis or a default threat. It’s a funding impasse, and those have come and gone for decades.
This latest standoff also happens to land at a seasonally favorable point in the market calendar. Shutdowns often occur at the start of the fiscal year, which overlaps with the market’s historically stronger fourth quarter. From October through December, investor sentiment typically improves as earnings season kicks in, year-end spending rises, and liquidity returns to the system.
Despite the noise, the data tells a steady story. Inflation has cooled, the job market is moderating without collapsing, and consumers remain engaged. These are the conditions that allow markets to climb even while the headlines sound uncertain.
September’s Surprise Strength
While much of the focus has been on the political headlines, it’s worth remembering that September — a month historically known for weakness — finished with the S&P 500 up about 3.5%, its best September since 2010.
That performance came on the back of better inflation data, resilient earnings, and a pivotal policy shift from the Federal Reserve. Markets had been preparing for slower growth; instead, they got moderation which is exactly what the Fed wanted to see.
The Fed’s Turn Toward Easing
In mid-September, the Federal Reserve cut its benchmark interest rate by 25 basis points, the first reduction in more than two years. It wasn’t a surprise, but it marked an important turning point.
For much of the past year, the Fed had kept rates elevated to fight inflation. Now, with prices stabilizing and the labor market cooling, the central bank has room to take a more balanced approach. Producer price and housing data from the Bureau of Labor Statistics show that both supply chain and shelter-related inflation pressures have started to fade.
This shift could continue. Futures markets are now pricing in at least two more rate cuts before the end of the year, along with a potential end to quantitative tightening, which is the Fed’s process of reducing its balance sheet. Both developments would add liquidity and support financial markets through the year-end.
Housing and Consumer Activity
Lower rates are already making a difference for households. Mortgage rates have fallen closer to 6%, down from the mid-7% range earlier this year, according to Freddie Mac’s Primary Mortgage Market Survey. That’s encouraging refinancing activity and helping housing affordability improve.
When monthly payments fall, consumer cash flow rises, and that money tends to make its way back into the economy. Combined with steady employment and the possibility of higher tax refunds in 2026, households appear better positioned than many expected at this stage of the cycle.
Consumer confidence remains the backbone of this expansion. Even as credit costs rise, spending on travel, entertainment, and experiences remains strong, showing that the engine of the U.S. economy is still turning over.
Market Breadth and Rotation
One of the most positive developments in recent months has been the broadening of market participation. For much of this cycle, a handful of mega-cap tech names carried the S&P 500. That’s changing.
Small- and mid-cap stocks are starting to find their footing again, with the Russell 2000 recently hitting a multi-year high. Broader participation often signals a healthier, more sustainable rally. It’s also giving investors new opportunities to diversify beyond the concentrated leadership of the “Magnificent Seven” tech giants.
For those who’ve been overweight in large-cap growth, this could be a good time to start rebalancing — adding selective exposure to small caps, dividend payers, and value-oriented sectors like healthcare, industrials, and consumer staples.
Fixed Income Finds Its Footing
After years of negligible yields, bonds are finally earning their place in portfolios again. Short- and intermediate-term Treasuries are yielding between 4% and 5%, according to U.S. Treasury data, and investment-grade corporates offer even more.
With the Fed moving toward an easing stance, fixed income now provides both income and the potential for price appreciation if rates continue to drift lower. For investors seeking stability or diversification, this is a constructive environment.
Outlook: Resilience Over Reaction
Despite the shutdown, markets are behaving rationally. They’re focusing on earnings, liquidity, and policy rather than politics. Inflation is trending in the right direction, credit spreads remain contained, and the global economy continues to hold steady.
The S&P 500 is up more than 13% year-to-date, and while October can bring volatility, history shows that the fourth quarter following strong summer months often finishes positive. According to CFRA Research, post-election years have averaged a 6.7% annual return for the S&P 500 since 1945.
This doesn’t guarantee smooth sailing, but it reinforces one simple principle: markets reward patience. Reacting to headlines has rarely been a winning strategy. Staying invested through noise and focusing on fundamentals almost always proves more rewarding in the long run.
If you’ve been sitting on cash, this could be a good time to start easing back in — using dollar-cost averaging to add gradually to positions. For those who remained fully invested, consider reviewing allocations to make sure your mix of equities, fixed income, and cash still aligns with your long-term goals.
Shutdowns come and go. But over time, the markets continue to do what they do best — look forward.
View the Full View from the Ranch Episode:
Sources & References
Invesco, “Government Shutdowns and Market Volatility,” Oct 2023, Invesco.com
Congressional Research Service, “Government Shutdowns and Executive Branch Operations,” Sept 2023
S&P Dow Jones Indices, S&P 500 Monthly Returns Data, accessed Oct 2025
NerdWallet, “Fed Cuts Interest Rates by 0.25%,” Sept 17, 2025
U.S. Bureau of Labor Statistics, CPI and PPI Reports, Sept 2025
Freddie Mac, Primary Mortgage Market Survey, Oct 2025
CFRA Research, Historical Market Performance in Election Cycles, Sept 2025
U.S. Department of the Treasury, Daily Yield Curve Rates, Oct 2025
Comments