October saw equity gains in most regions. US equities out-paced European stocks, but Japan and emerging markets were up more than their US counterparts. South Korea was up more than +20% in the month as the increasingly global AI theme continued to drive global returns. US markets were up for the sixth month in a row as corporate earnings exceeded expectations, optimism regarding a resolution to the US-China trade disputes and another Fed rate cut invigorated investors. Large cap tech led US markets higher, while small caps stocks were once again the laggards. Nvidia became the first company to be valued at more than $5 trillion. European equity gains were tempered by a strong dollar, while investors appeared enthusiastic after the election of the first female prime minister in Japan.
As was widely expected, the Federal Reserve cut the Fed Funds rate by 0.25% for the second time this year at their October meeting. In the post-meeting press conference, Chair Powell went out of his way to downplay the potential for a third cut when the Fed meets again in December. Instead, he stressed that the Fed remains concerned about inflation and will be data-driven as they balance price stability with full employment. Despite the rate cut, the US Dollar was stronger against every major developed currency during the month. Mortgage rates moved modestly lower, providing some relief to the housing market. Gold moved sharply higher in the month, cresting at more than $4,400 per ounce, before pulling back ~10%. Nevertheless, the yellow metal finished up for the month. Oil was down again in October on fears of oversupply and has been down each of the last three quarters.
The following table contains a summary of October and year-to-date market performance:
| Index | October | YTD | Index | October | YTD |
|---|---|---|---|---|---|
| S&P 500 (Total Return) | +2.34% | +17.52% | MSCI All Country World (Net) | +2.24% | +21.09% |
| MSCI EAFE (Net) | +1.18% | +26.61% | Bloomberg Barclays US Agg | +0.62% | +6.80% |
| MSCI Emerging Markets (Net) | +4.12% | +30.32% | 60/40 Blend* | +1.61% | +15.42% |
* 60% All Country World Index / 40% Bloomberg Barclays US Aggregate Bond Index
Real estate investments experienced sharp declines in 2022 and 2023 and despite improving fundamentals, have only modestly recovered since they bottomed in late 2023. As an asset class, real estate looks likely to underperform again in 2025. As a result of its nearly four years of underperformance, real estate may offer investors greater value than many other asset classes.
According to the industry-leading benchmark, the Green Street Commercial Property Price Index, real estate values declined 21.6% from their peak in April 2022 to their trough in December 2023 and have recovered a modest 5.2% through September 2025. In stark contrast, the S&P 500 has returned 60.8% over the same period.
This decline in value was coupled with a deep freeze in market liquidity. 2023 commercial real estate transaction volume declined nearly 50% compared to 2022, and fell again by 5.7% in 2024. So far in 2025, transaction volume is down another 10% through June 30th compared to the same period in the prior year. As a result, investors have experienced limited distributions from existing investments made prior to the downturn, and funds with more recent vintages have been slow to deploy capital.
Despite this struggling performance, underlying real estate fundamentals, as measured by occupancy and rent growth, are quite strong for most property types. For example, when looking at the largest investable sectors in the U.S. real estate market: multifamily apartments and industrial, we see a backdrop of strong fundamentals buoyed by rising trends.
Multifamily housing experienced record years of new supply in 2022-2024, but outside of a few markets in the Southeast, there was still not enough new housing built to keep up with demand. As a result, average national occupancy is above 95% and rent growth has been modestly positive. Looking ahead, new construction permits have fallen dramatically, and demand has yet to show signs of weakening. This dynamic sets up the potential for above-average rent growth until new development activity picks back up.
The U.S. industrial real estate sector is experiencing occupancy in line with long-term averages, with leasing and development activity being spurred by the expanding adoption of e-commerce, as well as the onshoring of supply chains. Rent growth has come down from its peak of low double digits in 2021 and 2022, but rents are still increasing sustainably at 2-4% per year, depending on the market.
The initial causes of the downturn, higher interest rates & lack of available debt to finance transactions, have abated. Private credit funds and insurance companies have stepped in to replace the lending activity previously provided by regional banks. The Secured Overnight Financing Rate (SOFR), on which the interest rate for most real estate loans is based, has come down from its most recent peak of 5.38% in September 2024 to 4.22% as of October 31, 2025.
With robust property fundamentals and improving capital markets, real estate appears to be one of the few asset classes currently offering a discount, especially relative to public equities and some private market company valuations. Commercial real estate is a cyclical industry, and after bouncing along the bottom for the last 18 months, we believe the current market environment provides greater potential upside than downside risk. As longtime clients know, Caprock believes that periodic rebalancing of portfolios is an important discipline for managing risk and benefitting from the eventual recovery of underperforming asset classes. Given the apparent asymmetric return profile currently offered by real estate, this time appears no different.
What we’re reading:
Below we share a glimpse into the books currently capturing the interest of the Caprock team – highlighting the diverse tastes and curiosity that drive our team.
Vivek Jindal, our Chief Investment Officer (and self-described chief nerd) is recommending the following:
- A Man Called Ove: One of Fredrik Backman’s earlier books (it may actually be his first), and still one of, if not, his best. It’s funny, sad, and uplifting at the same time – following “A man called Ove” and his rather winding path of love, heartbreak, grief, friendship, and family. Hopefully, this leads readers to Backman’s works as there are some good ones out there.
- The Mercy of Gods: A new space opera sci-fi entry from the authors of The Expanse Series (one of the better sci-fi series over the past decade). The next entry in the series will be coming out soon, and the first book is quite good. Humanity’s war across the known universe against a more powerful enemy, hence the chief nerd moniker.
- A non-book entry – The Hardcore History Podcast by Dan Carlin: Each theme usually is 25+ hours of listening, but it is well worth it. Dan ties past events in history to how the world evolved and, at times, is structured today. While not a historian, his use of different sources and ability to craft a strong narrative creates an enjoyable and enlightening experience, and something I look forward to listening to upon every new release. My recent favorite is the “Super-Nova in the East” series, which spans five episodes and covers the Asia-Pacific conflict in World War II.
This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns.