Trick or Treat Rally: A Hawkish Chill After Halloween Highs

October ended with a sugar rush for investors as equities hit record highs on strong Big Tech earnings and the Federal Reserve’s second consecutive rate cut. The S&P 500 gained 2.3% for the month—its sixth straight advance—while the Nasdaq extended its winning streak to seven months¹. Yet, beneath the bullish glow, volatility flickered. Mid-week, Fed Chair Jerome Powell’s cautionary tone on further easing cooled enthusiasm, reminding markets that the path from euphoria to anxiety remains thin².

Earnings Sweet Spot—and Hangover

All major U.S. indexes notched new highs early in the week, lifted by mega-cap strength. Amazon’s blowout report sent its stock up nearly 10% after cloud revenue hit a three-year high³. Apple also rallied on an upbeat holiday forecast but pared gains later in the week⁴. Meanwhile, Microsoft and Meta both topped earnings expectations yet fell 2.9% and 11.3%, respectively, after unveiling heavy capital spending plans⁵. The mixed reactions underscored how elevated valuations have made good news harder to please. Small caps and defensives lagged, leaving leadership narrowly concentrated. Abroad, MSCI’s all-country index marked its seventh straight monthly gain—the longest since 2021—while Europe’s STOXX 600 also advanced amid cooling inflation⁶.

The Fed’s Foggy Path

The Fed’s 25-basis-point cut arrived as expected, but Powell warned that another reduction in December was “not a foregone conclusion.” That hawkish nuance sent futures markets trimming odds of a follow-up cut from 92% to 65%⁷. Several Fed officials echoed the restraint, pushing Treasury yields higher—the 10-year rose nearly 10 basis points to 4.10%, its biggest weekly gain since April⁸. The move came amid a data vacuum from the ongoing government shutdown, forcing policymakers to rely on private indicators while “flying blind.” Elsewhere, a limited U.S.–China trade truce removed one source of headline risk⁹, and Japan surprised markets by keeping rates unchanged despite inflation above 2%¹⁰.