With the federal government shutdown ongoing throughout October, there is little official economic data to report on. What we did get from private data providers (ISM, Univ. of Michigan, and NFIB) was mixed but mostly showed that activity was about the same in September as August. The final October Univ. of Michigan surveys softened a bit from September1. The ISM Prices Paid Indexes showed Goods ticking down and Services ticking up slightly1 . The New Orders Index ticked down for both and the Employment Index ticked up for both1 . The NFIB Small Business Optimism Index fell back below 1001. One piece of official government data published was the CPI Report, which showed that the Headline and Core CPI Indexes came in a bit cooler than expected, with both rising at a 3.0% pace YoY1 . Services inflation continues to moderate, helped by easing shelter prices, while the trend in goods prices has an upward bias with food back above 3.0% YoY and energy seeing a sizable jump in September1.
The softer CPI data was a perfect backdrop for the Fed, now more concerned about the labor market, to cut interest rates by another 25 basis points to 3.75%. The move was well telegraphed and fully expected. However, the vote was not unanimous (one member voted for a 50-bps cut and another voted for no cut). Further, while Chairman Powell made the expected announcement that the Fed would end quantitative easing (QE), he also poured a bit of cold water on the notion that another 25-bps cut in December was a fait accompli. The longer the government shutdown lasts, the more the Fed will be flying blind data-wise as they contemplate their next move. With all that as a backdrop, financial markets remained resilient.
It was another solid month for bonds. The US 10-Year treasury yield fell 7 basis points to close the month at 4.08%1 . The Catholic Aggregate Bond Index added 0.62% while the Catholic Short-Term Government/Credit Index gained 0.34%1 . Spreads were flat with September at 28 basis points and remain historically tight1. Despite the drop in yields, the dollar strengthened modestly, nearly regaining the 100 level, though it is still below the level at the start of the year1 . Along with dollar strength, both gold and silver sold off sharply in the final week after surging in the first half of the month as volatility picked up1 . Still, both precious metals registered gains rising 3.73% and 4.38%, respectively1.
Equities continued climbing, with major indexes registering new all-time highs, though things were a bit less rosy under the surface as market leadership narrowed again. Large Cap Growth stocks reasserted themselves as investors piled into technology stocks, particularly anything associated with AI. The large cap Bloomberg 1000 Growth Catholic Values Index (B1CVGF) returned 2.63% while the Bloomberg 1000 Value Catholic Values Index (B1CVVF) fell -0.21%1 . Mega Caps led the way with the Bloomberg Magnificent 7 Index (BM7) gaining 4.93%1. The Bloomberg 1000 Catholic Values Index (B1000CV) returned 1.96%, outpacing the small cap Bloomberg 2000 Catholic Values Index (B2000CV) return of 0.86%1. Non-US equities continued to perform well with the Bloomberg World Ex-US Catholic Values Index (WLDXUCV) up 2.08%1 . When we look at the composition of returns for the broad Bloomberg 1000 Index (B1000) we see that October was an extremely top-heavy month. Just ten stocks drove the entire 2.96% benchmark return, while 72% of benchmark constituents underperformed and 60% posted outright declines1.
Trump had a busy month culminating in an Asia-Pacific trip where he negotiated trade deals with South Korea, Japan, and China. After both sides upped the ante with new tariffs and export restrictions in advance of their meeting, President Trump and Xi Jinping finally sat down to discuss US-China relations and trade. Trump called the meeting a “12-out-of-10”, a claim more grandiose than in the movie This Is Spinal Tap (for those unfamiliar, just Google it). In addition to stronger Chinese policing of fentanyl precursor exports and resumption of “substantial” Chinese purchases of US soybeans, the key terms are (1) an across the board 10% reduction in US tariffs, (2) a 1-year delay on a punitive 100% tariff hike by the US, and (3) suspension of Chinese export controls on Rare Earth Elements for 1 year (globally). There are conflicting reports of exactly what was agreed, so it is difficult to draw a firm conclusion. At face value, the talks have reduced uncertainty and cleared the way for smoother global trade and improved supply chains. I would give it an 8-out-of-10.
On the topic of tariffs, this week the US Supreme Court will hear oral arguments in the case challenging whether the International Economic Emergency Act (IEEPA) authorizes the President to implement tariffs. The Court of International Trade has already ruled against the administration. Should SCOTUS rule against the President and require all tariffs collected to date be refunded, it could create significant economic chaos, as the administration would turn to multiple other tools with which to impose tariffs (though more limited, they would likely still produce the desired result). Incidentally, the final Treasury Statement for the fiscal 2025 year ending September showed the US collected almost $195 billion in customs duties, up from just $77 billion in 2024 and versus $63 billion budgeted2. Most experts seem convinced SCOTUS will rule against the President.
A widely followed study from Jeffries & Co. shows fewer than 25% of actively managed funds beating their benchmark through the third quarter, which is one of the worst sets of results in more than two decades3. A narrow, growthy, speculative and volatile market with performance dominated by large technology stocks and anything AI related has proven a major challenge. Seasonality is supportive of stocks through year end and, with most active equity managers trailing their benchmarks, we expect to see a good deal of chasing returns which will likely extend the divergence between large cap technology stocks and everything else.
[1] Source: Bloomberg
[2]Source: Monthly Treasury Statement September 2025
[3] Source: Jefferies