Greetings!
It would have been nice if the headlines in the Upper Midwest over the past week had been dominated by the story of the summer that stuck around until October. Unfortunately, the latest federal government shutdown has crowded out that good news. While newsworthy, the economic impact of prior government shutdowns has been minimal. The Congressional Budget Office estimated that the longest shutdown, the 35-day shutdown from December 2018 to January 2019, had only a .02% drag on economic growth. Most federal employees are in critical positions such that those expected to be furloughed only account for about 25% of government operations.
The Federal Reserve (the Fed) made headlines in September with their .25% cut of the Federal Funds interest rate, the first since December 2024. The Fed had resisted calls to cut sooner citing a solid economy and the slow rise of inflation. Inflation reached 2.9% in August as measured by the Consumer Price Index, but it was news that the employment situation was softer than realized, which prompted the Fed to act.
The reported number of jobs created over the past year was revised downward significantly in September, indicating that employers are not hiring in big numbers. In fact, the number of job seekers now outnumbers available job openings for the first time in 4 years. Fortunately, there hasn’t been an increase in layoffs, so the unemployment rate remained at a reasonably low 4.3% in August. September’s job report will not be released until the shutdown is resolved.
Last quarter is a reminder that headlines don’t always tell the full story. Despite trade tensions, and a deteriorating jobs picture, the U.S. stock market continued to show strength hitting a new high 23 times during the third quarter. The Morningstar US Market Index finished up just over 8% for the quarter and is up 14.5% for the year. Large cap stocks continue to lead the way up 9.07% for the quarter and 16.27% for the year per the Morningstar Large Cap Index.
Global stocks cooled a bit after starting the year strong. Nonetheless, global stocks finished the quarter up 6.95% according to the Morningstar Global Markets ex-US Index. That index is up a solid 26% for the year. Chinese markets were up 20.1% for the quarter per the Morningstar China Index, and emerging stocks overall were up 9.65% per the Morningstar Emerging Market Index. Emerging Market stocks are up 24.27% for the year.
US bonds experienced strong demand in the third quarter that pushed bond prices up by about 2% per the Morningstar Core Bond Index. That index is now up 6% for the year. Long-term bonds saw the most demand with a 3.26% return in the quarter per the Morningstar Core Bond 10+ Year Index. Long-term bonds are up approximately 6.5% for the year. Continued strong demand for gold pushed its price to nearly $3,900 per ounce by the end of September for a gain of 17.1% in the 3rd quarter. Oil prices were down 4.2% for the quarter as production by the US and OPEC countries outpaced demand.
As we enter the last quarter of 2025, it is a good time to review your 2025 tax situation. There have been several tax law changes recently, making it important to see if you are maximizing available deductions well as plan for your tax situation long term. With the tax law now set for a while, our tax software also makes it easy for us to project taxes out several years allowing us to recommend strategies for minimizing your taxes long term. Please let us know soon if you would like to schedule a tax planning meeting as we get busier as 2025 winds down.
The Fed Funds rate is an interest rate the Federal Reserve charges banks to borrow from it for very short periods of time. The Consumer Price Index measures the change in the cost of living by tracking the prices of a basket of consumer goods and services.
The Morningstar U.S. Market Index measures performance of company stocks comprising 97% of the tradeable universe of stocks in the U.S. The Morningstar US Large Cap Index measures the performance comprising the largest 70 percent of the US stock market in terms of capitalization. The Morningstar Global Markets ex-US Index measures the performance of the top 97% of developed and emerging market stocks outside of the US. The Morningstar China Index measures the performance of the top 97% of Chinese stocks. The Morningstar Emerging Markets Index measures the performance of the top 97% of stocks in 24 emerging market countries. The Morningstar U.S. Core Bond Index represents the performance of a portfolio consisting of U.S. Treasury, mortgage-backed, and corporate bonds with a term of approximately 5 years to maturity. The Morningstar 10+ Year Core Bond Index measures the performance of fixed-rate, investment grade bonds with maturities longer than 10 years.
The opinions expressed in this article are those of the author and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.