Want to hear something really scary?
The ongoing government shutdown, now in its second month, is projected to cost the U.S. economy as much as $14 billion, the equivalent of a 2 percentage point hit to gross domestic product ().
That’s according to the nonpartisan Congressional Budget Office (CBO), which adds that most, but not all, of the shutdown’s negative effects could be reversed once the government reopens—whenever that happens.
As if that weren’t all, U.S. businesses and consumers are still facing an average tariff rate of 18%, the highest in about 90 years. Yale’s Budget Lab estimates that this translates into an income loss of around $1,800 per household this year alone, a not-insignificant amount.
That’s because consumers are shouldering most of the tariffs, according to . In a note to investors dated October 12, economists with the investment bank wrote that American households are currently responsible for paying about 55% of the new levies, while companies are paying 22%. The remaining 23% is either absorbed by foreign exporters or avoided altogether.
Higher Candy Prices Contributed to Record Spending This Halloween
Among the goods that have been marked up recently are Halloween candy, costumes and decorations. In September, the National Retail Federation (NRF) estimated that Americans would fork over a record $13.1 billion on Halloween this year, up from last year’s $11.6 billion and exceeding the previous record of $12.2 billion, set in 2023. Nearly 80% of surveyed consumers said they expected prices to be higher this year due to tariffs.
(Tariffs were also cited as the reason why some consumers are planning on spending less on Christmas later this year. Preliminary data from the Conference Board suggests that U.S. households will spend 4% less on gifts and 12% less on everything else compared to last year.)
Not all price hikes can be blamed on tariffs, though. That’s especially true when it comes to cocoa, used to make your favorite chocolate treats. West Africa, where some 70% of the world’s cocoa supply comes from, was hit by plant disease and drought in the past couple of years, causing futures prices to spike as high as $12,000 per metric ton at the end of last year.
Producers Reducing Cocoa Content
Earlier this year, a number of chocolatiers, including , and , announced higher chocolate candy prices as a result of increased input prices. Hershey warned of a double-digit percentage increase.
That’s not the only change they made. Maybe you’ve noticed, but many companies have had to “reformulate” their chocolate recipes by replacing expensive cocoa with other ingredients. This has led some companies to quietly remove the words “milk chocolate” from their candy bar wrappers, as they no longer meet the regulatory definition of milk chocolate.
European Chocolatiers in a Pinch, but Recovery Should Be Quick
These new formulas persist even as cocoa prices have collapsed nearly 50% since the start of 2025, though they’re still highly elevated on a historical basis, as you can see in the chart above. JPMorgan reports that second-quarter cocoa grindings—the process by which cocoa beans are turned into powder or liquor—were down as much as 7.2% year-over-year in Europe, home to many of the world’s most recognizable chocolate makers, including not just Mondelēz and Lindt but also Ferrero and .
Because of this, European sweets manufacturers are expected to see a decline in operating margins this year “amid intensified competition and reduced demand for cocoa-containing products in response to price increases,” according to Fitch. The ratings agency further believes companies should see a “prompt” margin recovery in 2026 as cocoa prices continue to fall.
Will the Halloween Effect Work This Year?
Few, if any, of the issues mentioned above appear to be influencing investors’ decisions. Government shutdown? Tariffs? Sticky inflation? Never heard of them.
Bloomberg, in fact, reports that the S&P 500 has spent more than 125 trading sessions above its 50-day moving average, logging the longest such stretch since 2011. Granted, this market continues to be fueled by investor enthusiasm over artificial intelligence (AI), with chipmaker ’s market cap now above a jaw-dropping $5 trillion.
The good news for investors is that history may be on their side. According to the Halloween effect—also known as the Halloween strategy or indicator—stocks have tended to outperform in the six-month period from November to the end of April, compared to the six months from May to the end of October. Since 1945, the stock market has delivered an average return of 7% from November to April, which is three-and-a-half times greater than the 2% average return over the remaining months.
The potential rally kicks off this month, historically the best month for stocks. For the 30-year period, the S&P 500 rose 2.6% on average in November, followed by April’s 1.7%.
But there’s more. Since 1950, when the S&P 500 has been up more than 15% year-to-date by the end of October—as it is this year—stocks have finished higher in November and December 95% of the time, according to Carson Investment Research. The S&P 500 gained 2.7% on average in November, 2.0% in December.
That said, I believe investors could be in for more treats than tricks as 2025 draws to a close. With the market up over 16% year-to-date, history suggests there’s a strong chance of a year-end rally.
That doesn’t mean investors should throw caution to the wind, but it does suggest that, despite the scary headlines, the real fright right now might be missing out on the rally that so often has followed.
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