Market Insights: October 2025
October 2025 felt less like a turning point and more like a stress test of a regime that has been in place for some time: resilient growth, sticky-but-manageable inflation, and a policy mix that is still more supportive than restrictive. Headlines around trade, tariffs, and politics were noisy, but the underlying data continued to point to an economy that can absorb higher rates and elevated uncertainty better than many expected a year ago. Equity markets leaned into that story, while the bond market began to focus more intently on the long-term consequences of persistent fiscal deficits and heavy Treasury issuance.
The result is a macro backdrop that looks, on the surface, quite friendly for risk-taking: growth is holding up, the central bank remains on an easing path, and global liquidity indicators are trending higher rather than lower. At the same time, inflation has not fully returned to pre-pandemic norms, and the fiscal picture is moving in the opposite direction of restraint. Historically, that combination has supported risk assets but also produced pockets of sharp volatility when something—funding markets, policy surprises, or geopolitical shocks—upsets the balance. The open question is whether this expansion can continue without forcing a more uncomfortable trade-off between inflation control and financial stability.
Current Regime Assessment
Based on the broad macro data and institutional research I monitor, we remain in an environment where economic growth is either stabilizing at a solid level or modestly accelerating, while inflation pressures are gradually easing from prior peaks but remain above the old 2% “comfort zone.” In plain language, growth looks better than feared, and inflation looks less threatening than it did, but neither is back to the pre-2020 playbook. Historically, that mix has lined up with risk-on behavior in equities and other growth-sensitive assets, while creating more ambiguous outcomes for longer-duration bonds. The main sources of uncertainty are whether upcoming inflation data stay cooperative in the face of tariffs and wage pressures, and whether the funding system can digest ongoing Treasury supply and balance-sheet policies without periodic strains.
Asset Class Observations
Equities
In equities, the combination of resilient growth and ample liquidity has historically been a powerful tailwind. Environments like this have tended to support earnings expectations, reward cyclical and innovation-oriented sectors, and encourage a shift from underweight to more neutral or even overweight equity exposure among institutional investors. In October, that dynamic showed up in continued strength in broad indices and, importantly, in signs of participation broadening beyond just a handful of mega-cap leaders. At the same time, valuations in many markets now resemble prior bull-market peaks, and positioning data suggest that a lot of optimism is already reflected in prices. The educational takeaway is that macro strength reduces the probability of recession-driven bear markets, but it does not eliminate the risk of 10–20% drawdowns driven by valuation compression or sentiment reversals.
Fixed Income
Fixed income is where the tension in this regime is most visible. Short-maturity yields reflect expectations of continued or eventual policy easing, while longer-term Treasury yields have been more reluctant to fall, implicitly discounting large and persistent fiscal deficits. Historically, when both growth and inflation expectations firm, nominal government bonds have struggled to provide the same defensive ballast investors grew used to in the prior decade. Credit spreads, for now, remain relatively contained, which is consistent with a still-healthy corporate sector. But as the term premium—the extra compensation demanded for holding longer-dated debt—adjusts to higher issuance and questions about fiscal sustainability, the behavior of bonds in equity drawdowns can become less reliable. Conceptually, this is a good moment to think about what risks fixed income actually represents (interest-rate risk, inflation risk, and credit risk), rather than treating it as inherently “safe.”
Commodities
Commodities are benefiting from the intersection of steady nominal growth and a global liquidity backdrop that is no longer tightening. Energy and industrial metals, in particular, have historically done well when manufacturing activity stabilizes or recovers and when policy is not actively trying to slow demand. Recent research highlights that, in similar regimes, industrial commodities often outperform more defensive agricultural products, reflecting infrastructure and capital-spending needs. At the same time, supply constraints and geopolitical tensions can introduce sizable short-term swings that are more about logistics than macro. Gold sits at an interesting crossroads: while it can experience oversold episodes after strong prior runs, environments defined by concerns over fiscal trajectories and the long-run purchasing power of cash have historically been supportive of its role as a hedge against monetary and fiscal regime risk, not just headline inflation.
Currencies & Alternatives
In currencies, the trajectory of the US dollar continues to matter for every other asset class. A backdrop of expanding global liquidity and improving growth outside the US has historically put downward pressure on the dollar over time, which can support non-US equities, emerging markets, and commodities. When investors start to question the long-term real return on cash and sovereign bonds, assets perceived as alternatives to traditional money—most notably gold and, more recently, certain digital assets—tend to attract attention. Gold’s behavior this year is broadly consistent with its historical performance during episodes of fiscal stress and concerns about real interest rates. Bitcoin and other crypto assets, by contrast, continue to trade as high-beta expressions of global liquidity: they often lead on the way up and the way down, with far greater volatility than traditional assets. From an educational standpoint, the key is recognizing that their tendency to move with, rather than against, broader risk sentiment makes them very different from conventional defensive holdings.
What I'm Watching
Heading into November, I am less focused on the precise level of any index and more focused on whether the underlying regime is starting to shift. Here are several indicators and developments I am paying close attention to:
- Central-bank policy and balance-sheet plans — Changes in the pace of rate cuts or adjustments to balance-sheet runoff can significantly influence liquidity conditions, term premia, and the relative attractiveness of cash versus longer-duration assets.
- Inflation data and tariff pass-through — Upcoming releases for consumer prices, producer prices, and wage measures will help clarify whether recent disinflation continues despite tariffs and supply frictions, or whether price pressures begin to reaccelerate.
- Fiscal deficits and Treasury issuance — The size and composition of government borrowing, especially the balance between short-term bills and longer-dated bonds, will shape how easily markets can absorb supply and how long-end yields behave.
- Short-term funding markets — Conditions in repo and other money markets are an early warning system for liquidity stress; persistent strains there have, in the past, foreshadowed broader volatility episodes.
- Positioning and valuations across risk assets — Measures of investor crowding, leverage, and sentiment help gauge whether pullbacks are likely to be shallow resets or whether there is fuel for deeper, disorderly de-risking if volatility picks up.
Closing Perspective
The dominant macro theme this month is the coexistence of a surprisingly resilient expansion with an evolving inflation and fiscal regime that looks very different from the pre-2020 world. The data suggest that the economy can handle higher rates better than many anticipated, but they also point toward an era where large public deficits and higher average inflation are persistent features rather than temporary bugs. The key uncertainties are whether inflation can settle into a stable range without a recession and whether bond markets can comfortably digest ongoing issuance without forcing sharper adjustments in yields or policy.
For observers of these dynamics, this is exactly the kind of environment where having a systematic way to think about regimes—how growth, inflation, policy, and liquidity interact—matters more than reacting to each headline in isolation. Rather than trying to predict the next market move, it can be more useful to understand how shifts in these underlying drivers have historically influenced different asset classes and to watch for signs that the current regime is starting to change.