No Data, No Problem: S&P 500's October Rally Defies The Government Shutdown

In October, stocks recorded a sixth consecutive month of gains, with the S&P 500 rising 3% and the Nasdaq 100 ETF (QQQ) over 5%, primarily driven by mega-cap technology, while small and mid-cap domestic stocks lagged. Despite a lack of official government reports, alternative data indicates a resilient labor market, steady consumer spending, and inflation trending near 3%. This economic backdrop, combined with strong corporate earnings and moderate inflation, suggests the Federal Reserve is likely to pause and reassess its monetary policy.

Analysis

The S&P 500 recorded a 3% gain in October, marking its sixth consecutive month of advances, while the Nasdaq 100 ETF (QQQ) surged over 5%. This robust performance was primarily driven by mega-cap technology stocks, contrasting with the lagging performance of small and mid-cap domestic equities. International equities and bonds saw modest gains, alongside volatile gold and declining oil prices.

Despite a lack of official government reports, alternative data sources indicate a resilient labor market, steady consumer spending, and inflation trending near 3%. This suggests underlying economic strength, mitigating concerns that might arise from data gaps. Strong corporate earnings further underpin the positive market sentiment.

The combination of strong corporate earnings and moderate inflation, as indicated by alternative data, suggests a high probability that the Federal Reserve will pause its monetary policy tightening. This reassessment period could precede any further interest rate adjustments, providing a more stable interest rate environment for the near term.

Key Decisions for Investors

• Investors should maintain exposure to mega-cap technology stocks, which continue to drive market performance, while carefully evaluating positions in lagging small and mid-cap domestic equities.
• Monitor alternative economic data for sustained resilience in labor and consumer spending, as well as inflation trends, given the absence of official reports.
• Anticipate a potential Federal Reserve pause in monetary policy, which could stabilize interest rates, but remain vigilant for any shifts in their forward guidance.