On September 24, we finally got a long-awaited rate cut of 25 basis points (one fourth of one percent). That was good news for investors and businesses. The idea is that the rate cut will filter through to lower interest rates for consumers and businesses, thereby stimulating the economy. That initial rate cut could also signal further rate cuts for the year, perhaps an additional two cuts before year end.
What prompted the cut? The Fed made it clear: concern over a weakening job market. The expected number of new jobs for the month of July was 75,000, a weak expectation to start with. The actual number for July came in at 22,000 jobs, well below that weak expectation. That was bad news. Even more bad news: job creation for the year ending March 2025, was revised downward by 911,000 jobs. A labor market that began slowing down in 2024 continued to slow, at perhaps an even faster rate, in 2025. But that could be good news because it makes the case even stronger for further rate cuts by the Fed. Confusing, isn’t it?
At this time, the federal government has shut down once again. One would think that’s bad news. Yet the U.S. stock market continued to advance during the first days of the shutdown. This is the eleventh shutdown since 1981. Most are resolved within a couple of days. However, four shutdowns lasted five or more days. How did stocks fare during these prolonged shutdowns? U.S. stocks ended higher in three of them and flat in the other one. So, is a government shutdown good news or bad news? You can decide for yourself!
What does this mean for your investments? Ideally, you have an investment philosophy that you can stick with despite the news of the day, good or bad. At a minimum, that philosophy should include the following:
- Don’t take more risk with your investments than you are comfortable with
- Maintain diversification among asset classes
- Keep your portfolio in balance as markets fluctuate.
Following these few simple principles can give you the best chance for a successful long-run investment experience.
