“Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
-Warren Buffett
Here’s what you need to know this week:
- Stocks fall on guarded remarks from the Federal Reserve
- Tensions thaw in Washington as the government shutdown reaches a potential tipping point
Mixed Signals
Markets retreated in the latter half of last week after reaching new all-time highs on Wednesday. The Federal Reserve *did* cut interest rates as investors expected, but Fed Chairman Jerome Powell’s press conference quickly threw cold water on the news. Specifically, Powell pointed to the lack of economic data due to the extended government shutdown, stating “You know what you do if you’re driving in the fog? You slow down.”[1]
Additionally, three Fed officials said publicly that they disagreed with the decision to cut interest rates this week. Fed Presidents Lorie Logan, Beth Hammack and Jeff Schmid spoke at a conference in Dallas on Friday and voiced their opposition to the cut due to the lack of economic information. In the absence of the government economic reports, investors and Fed officials have been turning to data collected by private companies, although this data is not as comprehensive.
The Federal Reserve (generally) cuts rates when inflation is low and when unemployment is rising. The October nonfarm payrolls (NFP) report was scheduled to come out this Friday but is unlikely to release due to the government shutdown. However, outplacement firm Challenger, Gray and Christmas released their own summary of the labor market and their report shows a clear weakening in US employment:
As you can see, this year has seen more job cuts than any year since 2020 and 2020 was an extraordinary year due to COVID. Looking further back, this year has seen the most job cuts since 2009 and this chart holds no data for the fourth quarter. On the one hand, this bodes well for continuing interest rate cuts: as of writing, the bond market is assigning a 70% chance of a 25 basis point (0.25%) cut at the Federal Reserve’s next meeting in December[2]. On the other hand, a weakening labor market is not a good sign for the broader economy, and past a certain point this will bleed into the stock market as well.
“Tipping Point”?
Stocks have continued their slide this week as investors grow more uneasy due to the protracted government shutdown. As of today, this shutdown is now the longest in US history and the impacts of the shutdown are beginning to grow. Many federal employees and service members have gone without pay for the past few weeks, but the effects became more widespread at the start of November. Welfare services such as SNAP ran out of funding on November 1st although federal judges ordered a partial reopening of the benefits until a deal is reached.
Perhaps the most impactful effect of the shutdown is air travel. Airlines across the country have faced delays and cancelations due to staffing shortages, particularly among air traffic controllers. Many controllers have taken extended leave or even quit in protest of being asked to work without pay due to the shutdown and senior air traffic controllers believe we are approaching a “tipping point” of widespread flight cancelations[3].
The air traffic disruption seems to have finally pushed federal officials to start looking for a compromise.President Trump hosted a breakfast with Republican senators and told them that “we must get the government back open soon, and really, immediately.” Democratic leaders Chuck Schumer and Hakeem Jeffries also reached out to the White House to renew negotiations[4]. Both sides are still far apart on the terms of a deal but for now it appears that the government shutdown may not last much longer.
What Else
- Hurricane Melissa wreaked mass devastation on Jamaica; the known death toll continues to rise nearly a week after the storm ravaged the island
- Israel has begun bombing Gaza again after accusing Hamas of breaking terms of the ceasefire
- Ukrainian President Zelenskyy spoke with European Union officials about Ukraine becoming a member of the EU
- Former Vice President Dick Cheney passed away at the age of 84
- The LA Dodgers won the World Series in a thrilling Game 7 against the Toronto Blue Jays
What We’re Reading
A supermassive black hole just produced the largest cosmic outburst ever recorded by astronomers. The burst was 30 times brighter than the previous largest burst and produced an amount of light ten trillion timesbrighter than our own sun. Click below to read how astronomers discover these bursts and what they hope to learn from them:
What’s Happening Downtown
Midtown is hosting their quarterly Midtown Walkabout this Saturday, November 8th from 11:00 AM to 5:00 PM. This event features deals and discounts from dozens of restaurants and retailers in the district as well as multiple live music stages, activities and a scavenger hunt. Click below for a full list and map of participating businesses and activities:
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, CFP®, Brandon Ingerson, Bill Daniel, Sam Postich, Jenni Hess