Market Watch: October 2025

Uncertain Path Forward as Rate Cuts Continue

October brought another round of rate cuts from both the Federal Reserve and the Bank of Canada, yet markets seemed unsure about what comes next. The Fed lowered rates by 25 basis points to 3.75%-4.00% on October 29th, but Chair Powell’s tone suggested they might be done for the year. On the other hand, the Bank of Canada lowered its rates to 2.25%, though Governor Macklem hinted they’re comfortable pausing here.

What’s making everyone a bit nervous? Inflation’s not cooperating as much as we’d hoped, job growth has been disappointing, and a government shutdown actually stopped the release of key economic reports. Still, stocks pushed higher, with investors betting that lower rates will eventually outweigh economic headwinds. Whether that optimism is justified remains the big question heading into the final months of 2025.

Global Market Overview

The S&P 500 gained 2.3%, pushing year-to-date returns past 17% and hitting fresh all-time highs along the way, which in fact is not bad for a market dealing with plenty of uncertainty. The economy grew at 2.8% in Q3, though slightly below economists’ expectations. The job market added just 42,000 jobs in October, according to ADP, a pretty weak number by any measure. Inflation ticked up to 3.0% in September from 2.9% the month before. Core inflation (which strips out food and energy) also stayed at 3.0%.

The European Central Bank held rates steady for the third straight meeting, with inflation hovering near the 2% target. Eurozone inflation actually ticked down to 2.1% in October from 2.2% in September. On the growth front, Q3 GDP came in at 0.2%, a modest pickup from 0.1% the previous quarter, with France and Spain leading the way. The unemployment rate stayed flat at 6.3%. In Japan, the BoJ held rates steady, which investors took as a positive, and hopes for a substantial stimulus package kept sentiment buoyant.

Canadian Market Overview

The Bank of Canada’s rate decision was expected – they cut by 25 basis points to 2.25% – but what caught investors’ attention was Macklem’s commentary afterward. He basically said they think rates are now “appropriate.” Growth forecasts for 2025 and 2026 have been trimmed to around 1.2%, down from earlier expectations near 2%, which is pretty sluggish. Unemployment hit 7.1% back in August, the highest level we’ve seen since the pandemic.

Moreover, inflation jumped to 2.4% in September after sitting at 1.9% in August. Hence, the BoC’s 2% target is back above it after being comfortably below it for several months. With the recent federal budget potentially requiring more stimulus, some economists think the BoC might need to cut again despite Macklem’s comments.

Canadian Sector Performance

Canadian stocks had a strong month, with the TSX hitting a new record high above 30,800 in mid-October before pulling back slightly. For the year, Canada’s been outperforming many markets, and that’s largely thanks to two sectors: materials and energy.

• The Materials sector is up roughly 70% year-to-date through October. Gold hitting record highs has been the main driver.
• Energy has put together a solid year as well, up 16% through the end of October. Canadian producers have benefited from relatively stable oil prices and strong production volumes.

Important Dates

• November 7: Canada Unemployment data
• November 13: U.S. CPI Inflation (October)
• November 17: Canada CPI Inflation (October)
• November 21: Canadian Retail Sales

Portfolio Strategy Tip

Given that inflation won’t quit, growth is slowing, and central banks seem done cutting rates for now, investors should focus on quality and income. They should be looking for companies with strong balance sheets and reliable dividend histories. Bonds are interesting again, particularly shorter-duration issues. With rates potentially stabilizing around current levels, you can lock in decent yields without taking excessive duration risk.

Final Thoughts

October’s rate cuts were steps in the right direction, but nobody really knows what comes next. Inflation’s being stubborn, job growth is weak, and we literally had a government shutdown that prevented key economic data from being released. Furthermore, trade tensions continued to flare throughout the month. That said, markets have shown surprising resilience through it all, with corporate earnings held up reasonably well. The next few months will tell whether central banks managed to tame inflation without tipping economies into recession.

For long-term investors, stay disciplined, stick to your plan, and focus on owning good businesses at reasonable prices. That approach has worked through every market cycle before, and there’s no reason to think this time is different.