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Weekly Market Commentary

THE WEEK IN REVIEW: Oct. 26 – Nov. 1, 2025

Fed cuts again but says December move isn’t certain

Have you ever watched a football game where one team gets a great kickoff return, only to start losing yardage on penalties before punting the ball away and frittering their opportunity to score? That’s how things are feeling in the markets right now.

The good news last week was the Federal Reserve’s rate cut of 25 basis points (.25%) as expected.¹ The bad news is that Fed Chair Jerome Powell stepped up to the podium after the decision and said another cut at the December Fed meeting is not a “foregone conclusion.”² Powell said there were dissenters at the meeting, with one official espousing a 50-basis-point (0.50%) cut and one calling not to cut.³

Dissent is healthy, and debate should be welcomed, especially if the data is incomplete. It also seems as if the Fed, with its hundreds of staff economists, should have access to more insightful data than is available to the general public. So, it was a headscratcher when Powell gave the analogy of “when driving in fog, you should slow down” as the excuse for a possible December pause. Sure, the average person should use caution when there’s fog. But the Fed is the economic version of NASA, NORAD and Strategic Air Command all rolled into one — and fog should not be a mission-crippling phenomenon.

Powell may be using the government shutdown as an excuse to slow down on any additional rate cuts. One doesn’t need to follow the breadcrumbs to see job growth is slowing, if not completely stopped. The Bureau of Labor Statistics (BLS) employment report (the same one Powell says isn’t being produced) showed +147,000 new jobs in June, +73,000 in July and +22,000 in August.^4,5,6 The ADP employment report, which isn’t affected by the shutdown, showed a decline in September of 32,000 jobs after adding just 54,000 jobs in August.⁷

Data shows jobs are in decline. We’re left to wonder just what the Fed is going to do, if anything, and will their actions or lack thereof plus the government shutdown blow up the economy? It feels like we’re marching backward, committing silly, avoidable and unnecessary penalties.

New market records, but clouds are forming

The federal government remained shut, so the initial reading of third-quarter gross domestic product (GDP) was not reported, and we have no confirmation of the level of economic growth last quarter. Federal employees aren’t being paid, although essential federal workers are expected to show up without pay. Government food assistance, which was scheduled to expire at the end of October, will impact millions of Americans.⁸

Yet Congress, which can end the shutdown at any time, continues to be paid. Plus, the Fed still doesn’t see a threat to the economy. Between the government shutdown and Powell throwing cold water on expectations for another interest rate cut in December, we could be lining up for one of the biggest self-inflicted face plants in recent memory.

Markets were flying high before Powell stepped up to the podium last week. The S&P 500 was over 6,920 just after the open, while the Dow climbed over 48,000 and the Nasdaq crested 24,000.^9,10,11 Hopefully, we didn’t hit the high-water mark for U.S. equity returns in 2025 last week. We’re also concerned that entrenched interests in Washington, D.C., will drive us into an economic ditch. And because there is no government-provided data for the Fed to react to, Powell has the excuse to do nothing and could blindly follow our politicians into the ditch as well.

Coming this week

• Markets have already started looking ahead to the December meeting and expecting another 25-basis-point cut. Current probabilities for a cut are at 69.8%, down from over 80% prior to Powell’s press conference.¹²
• Earnings continue to come in for the third quarter, with 64% of S&P 500 companies reporting results.¹³ So far, 83% of companies have reported positive earnings per share (EPS) and 79% have reported positive revenue. Earnings growth for Q3 is 10.7%, down from 11.8% last quarter and 13.4% in Q1. For the current quarter, 28 S&P 500 companies have issued negative EPS guidance and 21 have issued positive guidance. Valuation is still historically high for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 22.9 vs. 22.1 last quarter. This P/E ratio is much higher than the 5-year (19.9) and 10-year (18.6) averages.
• A flurry of Fed speakers will offer their views on where rates should be and if another rate cut in December is warranted. Given Powell’s non-committal comments, what they have to say may have a bit more impact on the markets.
• Data reporting will continue to be dependent on the government reopening. We’re scheduled to see September construction spending, October auto sales and MBA mortgage applications. The latest Job Openings & Labor Turnover Summary (JOLTS report) and ADP employment reading for October are also on the calendar.
• Finally, if the government is open by Friday, we should get the September and October jobs data from the BLS. (There was no jobs report last month due to the shutdown.)

Content prepared by Snappy Kraken.

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