September 2025
Investors and traders find themselves in a challenging predicament. With the government closed for business, the branches that report economic data cannot do so. This comes at a time of transition in the market. At the last FOMC meeting the message was that concern over the state of the labor market had risen as the new jobs added over the last several months had deteriorated significantly. The first day of closure was October 1st, just days before the release date of the September jobs report, which was expected to show the economy added 50,000 jobs in the month. The previous month’s release was a supreme disappointment with the economy adding just 22,000 jobs in August and the net revision to the prior two months showing employment had contracted by -21,000 workers. Some of the more astute economists have cautioned that August employment reporting is notorious for being noisy as back to school dates vary across the country, vacations and retooling by manufactures wreak havoc on the tally.
With the FOMC scheduled to meet in a little over two weeks, the assumption has been that they would cut rates at this and the December meeting, but the question has been raised would they still cut despite not having up to date data. We think the answer is probably yes. While the furloughed workers historically have been paid for the days that they were unable to work, the possibility exists that they’ve already begun to curtail spending. Moreover, with both sides seemingly dug in on their standoff, the fear of a longer-term closure has crept into the picture, which would have the undesirable effect of slowing the economy.
Despite that dour backdrop, the equity market continues to steam ahead, traversing new highs with each passing day. The price-to-earnings ratio of the S&P 500 based on expected 2025 earnings per share of $261.64 is 25.8 times, pricing in a best-case scenario, despite a time of rampant uncertainty. For evidence of that uncertainty, one only needs to look at the price of gold. The spot price of gold closed last year at $2,623 per ounce. At the time of this writing, that price has soared to $4,045 per ounce, a 54% rise. Pundits point to several reasons for the price rise with most of them being irresponsible monetary policy. Specifically, the Fed’s failure to achieve their inflation target before cutting the overnight rate, the sharp fall in the value of the U.S. dollar, the weaponization of tariffs, and Congress’s failure to reach a compromise to keep the government operating, to name just a few.
Despite those concerns, the U.S. consumer continued to buy goods and services at a robust pace. The last economic data before the shutdown supported that view. The first was new home sales in August, which sold at an annualized rate of 800,000, a 20.5% jump over the volume recorded in July. Economists are pointing to the recent drop in mortgage rates as the reason for the uptick. Although at an average rate of 6.25%, it’s still high compared to the level seen a few years ago.
The second surprise was the revision to Q2 GDP, which showed 3.8% growth. While that’s old data, it nevertheless shows that the consumer continued to spend in the spring despite “liberation day” concerns.
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