Long Government Shutdown

Government Shutdown Ending?

As we move into the final two months of 2025, you could excuse the equity markets if they got a little spooked during Halloween.  The lifeblood for any market analyst is data, and it has been hard to come by lately.  The government shutdown, in its 35^th day as we go to press, is fast approaching the longest on record. 

But the markets for the most part have stood tall.  The S&P 500 is near its all-time high despite the data blackout.  We’ll do our best here to read between the lines and figure out where things stand for individual investors.  Last month we said, “Don’t Fight the Fed.”  Given our positive investment results, this month we might need to say, “Don’t Fight the Tape.”

Last month the Federal Reserve cut interest rates for the second time this year, lowering its benchmark rate to a range of 3.75% to 4%.  This move was made to stimulate activity and help support the slowing job market.  But maximum employment is only half of the Fed’s mandate.  The other element, maintain price stability, continue to be a challenge as inflation remains above the Fed’s 2% target.  Chair Jerome Powell explained that the Fed is trying to balance those two goals as they develop policy.  And because of that, he said that another rate cut in December is possible, but not guar\anteed, as opinions within the Fed are divided. 

Looking ahead, since the Fed has always claimed to be “data-dependent” we expect them to be cautious since their flow of economic data has been interrupted by the government shutdown.  The Fed’s next meeting in December will be important especially if there are more layoffs and inflation stays under control.  Without full government data, the Fed is relying on private reports to guide their decisions.  This uncertainty means the Fed may choose to “slow down” as Powell put it and wait for clearer signs before acting. 

The stock market has reacted somewhat nervously to the Fed recent moves.  While rate cuts usually help stocks by making borrowing cheaper for companies, investors were surprised when Powell said future cuts aren’t guaranteed.  If the Fed cuts rates again in December, it could boost investor confidence and push stocks higher.  But if the Fed holds steady or inflation rises, markets are likely to become more volatile.

Outside the US, Europe and Japan are taking action to counter their own economic struggles.  Both countries maintain low rates in an attempt to stimulate growth.

While we have been saying this for a long time, despite some cracks, the US economy remains resilient.  Some doubt has entered the equation regarding an additional Fed interest rate cut in December, but we are still amid a lower rate cycle.  There is no chance of a hike in December, so our October admonition “Don’t Fight the Fed” remains in effect.