PRO NEWSLETTER

This week, the Federal Reserve acted as expected, cutting its benchmark interest rate by 25 basis points on Wednesday to a target range of 3.75% to 4.00%. Alongside the cut, the Fed announced a halt to its balance sheet runoff, effectively ending quantitative tightening (QT). Both moves were significant shifts away from policy restraint toward support, the subject of this week's newsletter.

U.S. markets surged on Friday, setting new all‑time highs for the S&P 500 and the Nasdaq Composite as investors cheered a cooler‑than‑expected inflation print (CPI for September at 3.0 % vs ~3.1 % expected).

This past week delivered a sharp pickup in volatility and quick reversals, underlining how fragile the tape has become. Early in the week, markets were pressured by renewed trade rhetoric from former President Trump. He threatened a 100 percent tariff on Chinese imports starting November 1 in response to China’s export controls on rare earths. While rare earth stocks soared on the news, it rattled investors, igniting fears of an escalating U.S.–China trade war just as bullish momentum had built.

The market crack on Friday resulted from a defensive move as geopolitical stress, trade rhetoric, and political dysfunction triggered a sharp reversal in sentiment. After trading relatively flat most of the week, the S&P 500 fell 2.7% on Friday, wiping out earlier gains and ending the week in the red. The late-day selloff was triggered by unexpected comments from former President Donald Trump, who called for a sweeping escalation in trade restrictions against China, including 100% tariffs and export controls.

Markets closed the third quarter grappling with two competing forces: Jerome Powell’s warning that equities are “fairly highly valued,” and the uncertainty of a government shutdown that began over the weekend. The shutdown halts most economic data releases from the Bureau of Labor Statistics, including this week’s jobs report, leaving investors without the usual anchors. Historically, markets have looked through shutdowns as political theater, and so far, that has been the case this time.

Jerome Powell’s statement this past week, that U.S. stocks appear “fairly highly valued,” wasn’t as dramatic as Alan Greenspan’s 1996 “irrational exuberance” speech, but the market heard the echo. Both comments speak to a central tension in monetary policy: the Fed may not explicitly target asset prices, but valuations matter when they begin to feed back into financial stability. Investors often dismiss these warnings, citing years of Fed liquidity support and low interest rates. Greenspan’s caution came four years before the dot-com bubble burst

The Federal Reserve delivered its first rate cut of 2025 on Wednesday, lowering the target range for the federal funds rate by 25 basis points to 4.00%–4.25%. The move had been well-telegraphed, yet it still represents a notable pivot in policy focus. For much of the past two years, inflation had been the Fed’s primary concern, but this time the statement emphasized that “downside risks to employment have risen,” a shift toward the labor side of the mandate.

This past week delivered a trio of market-moving economic releases, CPI, PPI, and the annual employment revisions, that collectively shaped investor expectations heading into next week's FOMC meeting.

The August employment report painted a clear picture of a cooling U.S. economy. Employers added just 22,000 jobs, far below consensus expectations, signaling that hiring momentum has slowed. Even more troubling, June was revised to show a loss of 13,000 jobs, the first monthly contraction since 2020. Meanwhile, unemployment rose to 4.3%, its highest level in nearly four years.