October 4, 2025 Market Update

Market Recap 

No government, no problem. That seems to have been Mr. Market’s response to the government shutdown this week.   

The Dow, S&P 500, and Nasdaq all hit record highs last week as AI optimism drew investor attention away from the government shutdown, even though it prevented the release of non-farm payroll numbers, data that investors closely watch.

Bond yields fell, led by longer-term Treasuries, on expectations that the Federal Reserve will continue cutting rates. Short-term bonds were little changed, and credit markets remained stable.

Historically, government shutdowns have had limited and short-lived effects on markets. The economy tends to power through and investors often snub what they expect to be a temporary disruption. But there are a few reasons why this time could be different: the economy is slowing, inflation is running above target, consumer savings are shrinking, federal debt is climbing, and political tensions both at home and abroad are intensifying.

In short, shutdowns alone rarely break bull markets, but this one bears closer watching.

Market Commentary

Last week’s data showed inflation is stabilizing despite new tariffs. The August Personal Consumption Expenditures (PCE) report revealed core inflation at 2.9%, while “super-core” inflation, which excludes housing and energy, crept up to 3.4%. Meanwhile, a key manufacturing survey showed the prices paid by producers fell for the third straight month. Together, these reports suggest inflation is stabilizing, leaving the Federal Reserve room to consider cutting rates further this year. Traders are now pricing in a 99% chance of a quarter-point reduction this month and an 87% probability of that being followed by another in December.

Back in June I noted that tariffs don’t always fuel inflation the way people expect. The primary reason is straightforward: when prices rise, households buy less, and that slowdown in demand offsets much of the initial upward pressure.

From a market perspective, this means that while trade policy has triggered volatility, it hasn’t yet meaningfully altered investors’ outlook for the economy or the stock market. But if tariffs permanently raise the cost of imported goods and services, and in turn squeeze corporate earnings on a wide scale, investor confidence could falter quickly.

In short, we are not out of the woods yet.

In Case You Missed It

Talk about smart investing: The Milwaukee Brewers open the playoffs today with a payroll of about $115 million, about half that of their upcoming opponent, the Chicago Cubs (~$210 million), and a fraction of big spenders like the Dodgers and Mets (each over $300 million).