Economic Update 9-29-2025

Economic data included a revision higher for Q2 U.S. economic growth, as well as strength in durable goods orders and new home sales. Jobless claims have stabilized after a few unusual weeks, including some fraudulent activity. Consumer sentiment remained challenged, with a good degree of pessimism about the economy and labor markets.

Equities were mixed, with declines in the U.S. and emerging markets, while Europe saw gains. Bonds were generally down as interest rates rose along with strong economic results and inflation. Commodities also gained, largely coinciding with crude oil.

U.S. stocks declined on net last week, led downward by growth stocks and small cap, in a reversal of the prior few weeks. By sector, energy led the way, up 5% along with a spike in oil prices, as well as utilities, while materials lagged with a decline of a few percent, in addition to consumer discretionary and consumer staples. The week featured a variety of unusual headlines, which included a large investment from Nvidia in OpenAI, and the U.S. administration’s involvement in a spin-off of TikTok’s U.S. operations from its Chinese operator for $14 bil. Early in the week, tech firms especially tried to interpret implications of the administrations of the new H-1B visa fee of $100,000, which has a strong impact on technology company employees, primarily from India. However, confusion continues around who is responsible for paying the fee, whether or not it’s a one-time charge, and how it would affect current U.S. workers on visa. A 100% tariff on branded pharmaceuticals was announced (except for the EU and Japan), for any firm not planning a manufacturing facility in the U.S., as well as new levies on heavy trucks, (upholstered) furniture, and kitchen cabinets.

The Congressional reconciliation bills (12 of them) have yet to pass, with Democrats keen on rolling back some earlier spending cuts from the Affordable Care Act and Medicaid. This only affects the roughly one-quarter of spending available as discretionary, without touching payments for Social Security, Medicare, interest on debt, etc. If this turns into a government shutdown on Oct. 1, per estimates from Goldman Sachs, -0.15% per week could be trimmed from GDP growth for Q4, although that could be reversed back upward in a similar magnitude in Q1-2026. Data releases could also be on hiatus, at an especially critical time for the Federal Reserve’s evaluation of economic conditions. At the same time, as JPMorgan reminds us, there have been 21 shutdowns since 1950, most of which only last a few days until agreements are reached, with financial markets generally looking past them, unless they turn more severe.

At a Wed. speaking event, Fed Chair Powell noted that the economy is in a “challenging position,” with the pace of job growth appeared to be running below the “breakeven” rate, although other indicators were stable. Importantly, and in keeping with the delicate balance around the Fed’s dual mandate, he again noted that keeping “restrictive policy too long” could unnecessarily weaken labor conditions, while easing “too aggressively” could “leave the inflation job unfinished,” although “disinflation for services continues” outside of the one-time price impacts from tariffs. He made a comment or two about risk surrounding “fairly highly valued” equity prices, which was not taken as well by financial markets, perhaps as a modern version of Fed Chair Greenspan’s “irrational exuberance” reference in 1996, a few years before the tech bubble peaked and later unwound.

Members of the Fed have been increasingly public about their interest rate views, with a notable divergence between those concerned about inflation pressures (like Chicago Fed president Goolsbee, not wanting to cut rates too fast) and those more focused on labor slowing (such as new governor Miran, wanting a faster easing pace, and that rates should be roughly 2 percent lower than current levels). This is definitely a change from past eras, where the Fed was not at all transparent about policy, until after the fact, and certainly not as much public candor from individual members.

Foreign stocks were mixed for the week, with gains in Europe and the U.K. offset by declines in Japan and emerging markets. Europe was boosted a bit by stronger business activity, although growth was not as strong in the U.K. The Swedish central bank lowered rates by a quarter-percent to 1.75%, while the Swiss stayed on hold at 0%. In EM, declines in India, Turkey, South Korea, and Taiwan (the latter two highly correlated to U.S. technology movements) led the broader index downward, as China was little-changed for the week.

Bonds fell back as more positive economic news and continued strong PCE inflation readings kept long-term rates elevated. U.S. Treasuries outperformed investment-grade slightly, while high yield and floating rate bank loans fared best of all. Foreign bonds were mixed, with a stronger dollar hurting unhedged developed market and local market emerging market debt.

The U.S. Treasury’s support for Argentina, offering a $20 bil. swap line, allowed their central bank to cut short-term interest rates from an exorbitant 35% to 25%. The improved but still-elevated rates show the distrust many global (and local) investors have for the country that has defaulted on its debt several times and having experienced inflation woes and government financial distrust for decades. This is despite the current president’s work to put through extreme reforms and get the country back on track to financial stability and better integration back into the global marketplace.

Commodities were generally higher, despite the normal headwind of a stronger U.S. dollar, led by gains in energy and precious metals. Crude oil price rose 5% last week to over $65/barrel, with a variety of influences from Ukraine attacks on Russian oil production facilities, taking perhaps a million barrels a day offline, and suggestions from the U.S. that nations stop buying Russian oil. These developments have partially offset the excess production that has kept prices contained.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.