Constructive Outlook for Risk Assets Amid a Shifting Market Cycle

Despite early volatility driven by the longest government shutdown on record, hawkish Fed signals, AI scrutiny, and elevated valuations, the S&P 500 Index finished slightly higher (+0.2%) as economic data came in mixed but softened, the Fed’s tone turned more dovish, sentiment improved, and odds of a December interest rate cut increased. US small-caps and US mid-caps led gains (+2.6% and +2.1%, respectively), while emerging market equities and US growth were down (-1.2% and -0.9%, respectively). Bonds fared well as 7-10 year US Treasuries rose 1.0%, investment grade corporates gained 0.8%, and high yield credits increased 0.8%. Aside from crude oil (-2.1%), commodities produced positive returns as silver was up 16.4%, gold rose 5.4%, and broad-based commodities increased 3.1%.