October Market Insights

Stocks and bonds extend decline on interest rate anxiety.

Article published: November 06, 2023

By: Neil Gilfedder, CFA® Chief Investment Officer

October was a bad month for markets, despite a rally in stocks at month’s end. U.S. large-cap stocks (S&P 500) ended down 2.10% for the month and small caps (S&P 600) declined 5.74%. The Bloomberg U.S. Aggregate Bond Index, a broad measure of bonds, fell by 1.58%. Emerging-market stocks (MSCI Emerging Markets) dropped 3.89%, while developed-market international stocks (MSCI EAFE) fell 4.05%. 

Why it happened

As we’ve discussed before, markets move when there is new information, not when what was already expected happens. There was a range of news in October, both geopolitical and financial, that impacted the market in varying degrees.

However, October’s biggest market driver was the unexpected strength of the U.S. economy after the Federal Reserve’s series of interest rate hikes. The month’s employment report showed that the labor market remains strong, with new hires beating expectations by a sizeable margin. The economy’s output, measured by the Gross Domestic Product, grew by an annualized rate of 4.9% (after inflation) from July to September, higher than predicted.

Why was this good news about the economy bad for the markets? It’s because of inflation, and in turn, interest rates. While the core inflation rate continues to decline, albeit slowly, the positive economic news created investor concern that inflation may not continue to decline, or at least not as quickly as previously thought. And this could mean that the Fed would have to keep interest rates at higher levels for longer – and maybe increase them further – to bring inflation down to the Fed’s 2% target. This would hurt borrowers, including companies and individuals, and that could slow economic growth as inflation decreases. 

What it means for you

Due to continued uncertainty about the Fed’s rate trajectory, the market could rally or decline on changes to rate expectations. Amid short-term volatility, we help ensure your portfolio continues to align with your financial plan by rebalancing your portfolio when appropriate. Remember that, although past performance is not a guarantee of future results, over the long term, the market has historically retained an upward trajectory. If you have questions about your portfolio’s long-term investment strategy, please contact your financial planner.

An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.


Investing strategies, such as asset allocation, diversification or rebalancing, do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.

Neil Gilfedder, CFA®

Chief Investment Officer

As executive vice president of investment management and chief investment officer, Neil oversees the team that manages investments for all Edelman Financial Engines clients. Neil directs the investment management operations and evolution of our proprietary investment methodology. Neil received a bachelor's degree in philosophy and economics from the University of York and a master's degree in economics from Stanford University.