Trump piled the pressure on the Fed over the weekend, barking that he expected a “big cut” from the central bank after their meeting on Wednesday. Market-driven expectations remained above 90% that the Fed Funds Interest Rate would be lowered by a quarter of a point, as the committee prioritizes addressing a cooling labor market even while sticky inflation complicates the picture. Traders were also prepping to take a close look at the quarterly “Dot Plot”update of economic and interest rate forecasts.
Once markets opened on Monday, Alphabet/Google joined juggernauts Nvidia, Microsoft and Apple in the $3 trillion+ valuation club and the tech giants pulled the indexes higher with the S&P 500 and NASDAQ reaching their 25th and 26th (respectively) new all-time record highs of the year.
To the surprise of absolutely no-one, Senate Republicans obediently fell in line behind their chief on Monday night, merrily waving through Trump’s controversial pick for “on-loan” Fed governor Stephen Miran just in time for the White House advisor to take a seat on the central bank interest rate-setting committee the very next day as the president’s personal fox in the henhouse.
Also in attendance was governor Lisa Cook after the administration’s frantic attempt to have her forcibly removed from the meeting for supposed mortgage fraud was tossed out in court. The cause was not helped by the revelation that Trump loyalist, Treasury Secretary Scott Bessent, appears to have an identical situation with his own mortgage applications, which were for about 30x the amount of Cook’s.
Pre-market on Tuesday, Wall Street got the latest Retail Sales figures to chew on which showed much more resilience than expected from the US consumer. As the old saying goes; “don’t stand between an American and a cash register”. A few chips were taken off the table right ahead of Fed Day and the indexes quietly went nowhere.
The date that’s been circled on many calendars for a long time finally arrived on Wednesday. As anticipated, officials cut the Fed Funds interest rate by a quarter of a percent to a 4.125% mid-point. Parachuted-in governor Miran was a lonely “Billy-No-Mates” in the room as literally no-one joined him in dissenting from the “only” quarter-point cut decision. Powell’s press conference failed to produce any fireworks.
The Dot Plot showed that the median assumption on the committee was for two more quarter point reductions over the course of the two remaining meetings this year, although there was a lot of dispersion of opinion with seven of the nineteen members predicting no more cuts at all in 2025. The Fed is essentially sending two credible messages at the same time. Yes, the median dot implies two more cuts this year, but the dot distribution says those cuts need to be earned by the data, especially upcoming jobs and inflation numbers.
It was all a bit of a yawn for stock markets, which lost a little ground with some rate cut-hungry traders slightly disappointed by the fact that the only support for anything more than a quarter-point reduction came from the president’s own hand-picked man on the inside.
The announcement that Nvidia will join the US government in taking a stake in Intel sparked another steep AI-driven rally on Thursday, although the deal was largely viewed as having Trump’s fingerprints all over it. Intel’s stock price jumped 30% at the open and the S&P 500 and the NASDAQ comfortably reclaimed more new all-time record highs by the close where they were finally joined by the Russell 2000 Small Cap Index which, after years in the wilderness, reached its first new record close since November 2021.
It was more of the same on Friday with stocks moving onwards and upwards to close out a very solid week in spite of a third Russian incursion into NATO territory (Estonia this time) and the US lurching closer to an October 1st government shutdown after nonsensical Congressional petty bickering scuppered a deal.
Even though last week’s Fed decision on its overnight rate had no direct effect on mortgage rates (which pivot off the market-driven 10-year Treasury rate, which actually moved higher last week - see INTEREST RATES below), it did result in an immediate cut in the interest rate paid by most cash instruments like money market accounts, CDs and high yield savings accounts (see my newly-updated post CASH IS STILL INTERESTING) as well as a 0.25% reduction in the Prime Rate.
The fact that the US central bank was prepared to cut rates (thereby potentially stimulating inflation) even while CPI is running at basically 3% casts some doubt on how seriously the Fed is going to take its self-imposed 2% inflation target level (which hasn’t been accomplished in over five years) going forward.
The likelihood now seems to be that, over the next several months and quarters, we will find ourselves in a run-hot economy characterized by elevated economic growth, continued AI enthusiasm but potentially lively inflation and of course an endless supply of bonkers out-of-left-field surprises.
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ARTICLE OF THE WEEK ..
“Investing and reinvesting can be hard, it’s confusing, it’s uncomfortable. But you need to do it for your future well-being.” Ritholtz’s Callie Cox on why you likely can’t just W2 your way to wealth.
.. AND I QUOTE ..
"The stock market is a device for transferring money from the impatient to the patient."
Warren Buffett
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Technology for the second week in a row (two biggest holdings: Nvidia, Microsoft) ⬆︎ 3.0% for the week
Last week’s worst performing US sector: Real Estate (two biggest holdings: Prologis, Welltower) ⬇︎ 1.2% for the week
* SPY, a US Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. Its price rose 1.0% last week, is up 13.2% so far this year and ended the week at a new all-time record closing high.
* IWM, a US Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. Its price rose 2.0% last week, is up 10.0% so far this year and ended the week 1.0% below its all-time record closing high (09/18/2025).
* VXUS, a Global Non-US ETF, tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets. Its price was unchanged last week, is up 24.1% so far this year and ended the week 1.5% below its all-time record closing high (09/18/2025).
INTEREST RATES:
* FED FUNDS * ⬇︎ 4.125% (4.375% a week ago)
* PRIME RATE ** ⬇︎ 7.25% (7.50% a week ago)
* 3 MONTH TREASURY ⬇︎ 4.03% (4.08% a week ago)
* 2 YEAR TREASURY ⬆︎ 3.57% (3.56% a week ago)
* 5 YEAR TREASURY ⬆︎ 3.68% (3.63% a week ago)
* 10 YEAR TREASURY *** ⬆︎ 4.14% (4.06% a week ago)
* 20 YEAR TREASURY ⬆︎ 4.71% (4.65% a week ago)
* 30 YEAR TREASURY ⬆︎ 4.75% (4.68% a week ago)
Data courtesy of the Federal Reserve and the Department of the Treasury as of the market close on Friday
* Decided upon by the Federal Reserve Open Market Committee. Used as a basis for overnight interbank loans and for determining high yield savings interest rates.
** Wall Street Journal Prime Rate as of Friday’s close. Used as a basis for determining many consumer loan interest rates such as credit cards, personal loans, home equity loans/lines of credit, securities-based lending and auto loans.
*** Used as a basis for determining mortgage interest rates and some business loans
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
* ⬇︎ 6.26%
One week ago: 6.35%, one month ago: 6.58%, one year ago: 6.09%
Data courtesy of Freddie Mac Primary Mortgage Market Survey
INTEREST RATE EXPECTATIONS:
Where will the Fed Funds interest rate be after the next rate-setting meeting on October 29th?
* Unchanged from now .. ⬇︎ 8% probability (15% a week ago)
* 0.25% lower than now .. ⬆︎ 92% probability (80% a week ago)
* 0.50% lower than now .. ⬇︎ 0% probability (5% a week ago)
With two more Fed rate-setting meetings left in 2025, what is the most commonly-expected number of remaining 0.25% Fed Funds interest rate cuts this year?
* ⬌ Two (unchanged from a week ago)
Data courtesy of CME FedWatch Tool
All data based on the Fed Funds interest rate (currently 4.125%). Calculated from Federal Funds futures prices as of the market close on Friday.
PERCENT OF S&P 500 STOCKS ABOVE THEIR 200-DAY MOVING AVERAGE:
* ⬇︎ 60%
One week ago: 63%, one month ago: 62%, one year ago: 78%
Data courtesy of MacroMicro as of Friday’s market close
This widely-used technical measure of market breadth is considered to be a robust indicator of the overall health of the S&P 500 index. A high percentage (above 70%) generally suggests broad market strength and a bullish trend, while a low percentage (below 30%) may indicate market weakness and a bearish trend.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
Data courtesy of CNN Business as of Friday’s market close
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
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