HPWG October Market Update: Can This Be the Launchpad for a Year-End Rally?

Hello and Welcome to the October Hoffman Private Wealth group Podcast. My name is Todd Hoffman, and I am a Certified Portfolio Manager and Certified Financial Planner and Founder of Hoffman Private Wealth Group where I am a Managing Director and Wealth Advisor at Steward Partners.  My CO-HOST Jenna Makras is also a Wealth Advisor on the team.

Jenna: Hi everyone! I’m thrilled to be here, and I hope everyone is doing Great!  Before we get into the markets, Todd, how’s life on the home front? I hear you have been buried in boxes and unpacked. 

Todd: Yes, finally we’re working on getting the house back together after our house was flooded. I swear every time I unpack one box, I discover two more. It’s like they keep multiplying.

Jenna: I know exactly what you mean, and when you open them, I’m sure you’ve asking how you ever accumulated so much junk, right?

Todd: Exactly! And what’s new with you?

Jenna: Well as you know my daughter Chloe is in 3^rd grade now. That means lots of kids and Germs and she has been sick this week. She threw up in my car twice yesterday, poor thing!

Todd: I’ll bet that was fun! I hope she’s feeling better quickly.

Jenna: You know kids, one day they are throwing up in your car and the next they are running around feeling great. Let’s hope this is the case this time! She is so sweet, I hate to see her feeling bad. So, let’s jump into this Podcast.

So here we are already and it’s October already, entering the final quarter of the year. After a bumpy September which exceeded expectations and according to FactSet, U.S. equities finished with the Dow reaching a fresh all-time high and the S&P 500 finishing just below its peak. Defying expectations of seasonal weakness, the market posted a robust gain of over 3.5%—marking the best September performance since 2010. Still, in the last two weeks markets have again been searching for direction. Many investors are wondering, “Are we setting up for a year-end rally, or could October bring new challenges?

Todd: “In my view, Jenna, October is often a turning point month. We saw September live up to its reputation as being a volatile month, but as you said the Market did well. The fact is often during long-term rallies – the markets take a breather and bounces around during consolidation periods, then continue the path higher with new strong upside trends.

Jenna: Can you talk about the factors behind this current choppiness?

Todd: “There are three big areas to watch closely now, and I think the order will flip flop from day to day like a fish out of water:

 

• “The first thing we are watching is Federal Reserve policy. In September, the Fed kicked off a new easing cycle with a ¼ percent rate cut. Rate cuts are always a double-edged sword. Bulls cheer them because lower rates stimulate growth. Bears, on the other hand, argue that the Fed only cuts when the economy is slowing — which fuels the Headlines of the Dooming Market Crash Approaching. The truth is, both sides have a point. Historically, rate cuts do support growth during periods of slowdowns, but It does NOT mean that Dr Doom has arrived. This often leads investors to react with mixed emotions — from optimism to fear — and why investors can sometimes feel whiplash and fatigued from the nonstop and often outlandish headlines.”

 

• “The second is the DEBT CEILING. “The U.S. government shut down last night, on October 1, 2025, after Congress failed to pass funding for FY 2026. This has caused many non-essential federal operations to become suspended, while core services like defense, law enforcement, Social Security, and Medicare continue, according to Reuters news. This resulted from a lack of a deal between the Republicans and Democrats over health care subsidies, budget cuts, and spending levels. Both parties still seem far apart, and frankly, both want their moment in the spotlight. It will not surprise me if this shutdown goes on for a couple of weeks but ultimately, I believe they will strike a deal and, once again, kick the can down the road. In the meantime, should the markets pull back from this uncertainty, I consider this to be a strong buying opportunity in front of quarterly earnings.

 

• This is a perfect lead into the third area, we are about 2 weeks from the main Kickoff of Corporate Quarterly Earnings. According to FactSet, the S&P 500 companies are expected to post 2–3% earnings growth year-over-year. That is modest, but still growth, not a recession as some in the news are predicting. More important as a Portfolio Manager is which areas will be the standouts, and which will be the duds. I think the Standouts with good earnings will continue to be the Technology Sector, including AI, Communication, and the Financials sectors will be showing strong improvement. I think the biggest change from the past is the forward guidance for the Financial Sector, as earnings comments likely should reflect improved earnings from falling interest rates. I think the Utilities Sector will be the most mixed with earnings guidance because there is such a difference in expectations between companies who have been investing in increasing capacity for AI, Data Centers and for New Manufacturing which has resulted from Trumps Trade settlements and those who are not. I believe the Laggard Sectors will be Healthcare, particular Large Pharmaceuticals, Consumer Staples, and Materials.

Jenna: Todd let us talk about the rate cut in more detail. Many clients are wondering, “Is the Fed going to cut two more times this year as the Market is expecting, according to the Fed Futures contracts on Factset and even the Dot rate path supplied by the Fed itself?

Todd: That is a great question, Clearly Trump wants lower rates to stimulate the market, and keep the economy humming and generating tax revenue. Plus, he does have a dog in the fight as lower rates are good for real estate, which he owns a lot of. Powell on the other hand does not seem inclined to satisfy him due to his concerns about Inflation, and even Stagflation. I think Powell will need to see proof that employment is falling faster before we see the rate cuts before the end of the year which the markets are pricing in. If earnings are strong, as I suspect, this means growth is still good and inflation may be having a hard time coming down enough for the cuts. Also impacting Inflation is what is going to happen with the permanency of the Trump Tariffs and we won’t know the appeal court’s decision until at least the 15^th, and finally will we see the government report another new round of major revisions about the unemployment rate and Inflation, like what happened last month.

Jenna: Todd, you mentioned Stagflation, can you explain what this is and why is it so feared?

Todd: Stagflation is when inflation is high, the economy slows, and unemployment rises — this is a rare and painful combination. The reason is, it is hard to fix, because raising rates to fight inflation hurts economic growth and Employment, while cutting rates to boost growth risks fueling even higher prices, or Inflation.

The clearest example of Stagflation was the 1970s oil crisis, when OPEC’s embargo sent energy prices soaring. Inflation hit double digits, growth stalled, and unemployment spiked. The Fed eventually crushed inflation with extremely high interest rates, but it caused a deep recession.

More recently, after COVID, supply chain disruptions and energy shocks pushed inflation higher while growth slowed. Some economists warn that today’s mix of sticky inflation, weaker job creation, and slowing growth could resemble stagflation — though central banks now have stronger tools and more credibility than in the 1970s.

Jenna: So why are you not more concerned about Stagflation?

Todd: I feel, unlike the 1970s, inflation is now slowly easing, unemployment is still low, and the Fed has stronger tools to keep things in check. Even while growth may be slowing, the economy and labor market remain resilient. While we are seeing slower growth with moderate inflation — we are not seeing the kind of stagflation spiral people worry about.

Jenna: Todd, how does your current scenario help, or hurt the stock market?

Todd: A “slower growth with moderating inflation” backdrop is supportive for the stock market. If inflation keeps easing, the Fed has less pressure to keep rates at current levels - eventually cutting rates further. It is like sugar to the markets to give them a boost of energy. Lower interest rates also reduce borrowing costs for companies and tend to push investors back toward equities rather than bonds - often the setup for a stock market rally.

Here is a joke I read, “The Fed walks into a bar and orders a drink. Bartender says, ‘Why the long face?’ The Fed replies, ‘Well, if I raise the rates, nobody is happy. If I cut the rates, everybody panics.’” Bartender says, ‘Sounds like you just need a neutral policy.

Jenna: You had to slip one in there didn’t you! ……Todd, last month you mentioned that September was often a bad month for the stock market. What does the calendar say about October?

Todd: Seasonality, while September has historically been weak, October often flips the script. If you look at Factset data, October often is a launching pad for fourth quarter year-end rallies, and as investors position ahead for the so-called “Santa Claus rally” that sometimes happens in the final weeks of December.”

Jenna: Todd, what is your takeaway for clients listening right now?

Todd:

First - “I would say this: Volatility is not the enemy; it is the price of admission for long-term growth. Pullbacks like we have seen in September, and early October are normal, even healthy.

Second, The Fed, as evidenced by the September rate cut and comments since, reflect they have shifted from a Defensive to a more Supportive stance, this is likely to give the market more confidence, often you hear it called a Fed Put.

Third, Corporate profits, while mixed across sectors, remain resilient. The markets and our portfolios are having a good year despite an early year market tantrum with severe volatility and a market selloff, and I am confident 2025 will prove to be another year our investors will be even more pleased with.

Fourth, while people talk about how expensive the market is, I am finding more opportunities than I have money to invest in, and I believe, if at all possible, people should be adding to their portfolios.

Fifth, do not underestimate the long-term drivers — AI, infrastructure spending, Defense spending, Healthcare Innovation, and Reshoring of Supply Chains and Manufacturing remain Powerful themes.

Lastly, I want to comment. Many people have asked about the number of trades we have done this year. Yes, we have been more tactical than in years past. Early in the year to get more defensive having stopped out of several companies in our client’s portfolios. Then as the market stabilized, we had numerous great opportunities to take advantage of buying world-class companies on sale, many at fire sale prices, and many I believe with significant more profits to come.

This is like the purchases we made during the pandemic, and again, in 2022 when the increased interest rates so quickly causing the markets to sell off, as you may recall after both periods, these purchases were very helpful to performance. Similarly, I believe the buys we made in 2025 will be very helpful during the rest of 2025 and 2026.  I can also tell you that we have continued to remain vigilant with reducing taxes at every turn with tax swaps and managing sales to long-term gains, wherever possible.

Jenna: Thank you for the explanation, it is extremely helpful. So, the big message is — stay patient, do not overreact to the noise, and keep focused on long-term opportunity?

Todd: “Exactly, Jenna. Investors who keep a steady hand during volatility are the ones who can benefit the most from it.

Jenna (closing): “Thanks, Todd. That is a great reminder as we step into the fourth quarter. We appreciate everyone listening to our October Market Update. If you have questions about how markets affect your portfolio, or if you are not a client yet and you’re listening to this Podcast, please reach out. We are here to help.”

Todd: “Thanks for tuning in to our October podcast! If you are listening on Spotify, don’t forget to give us a thumbs up and please forward our Podcast, or our Podcast invitation to your friends and family. It really helps us reach more people. We love hearing from you- and we will be back again next month.

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