No. of Recommendations: 9
https://www.wsj.com/politics/policy/trump-to-host-...
Trump to Host Last-Ditch Talks to Avoid Government Shutdown
President is set to meet with congressional leaders on Monday, just ahead of deadline
By Siobhan Hughes and Katy Stech Ferek, The Wall Street Journal
The government will shut down Wednesday at 12:01 a.m. if Congress can’t pass a short-term spending patch. ...
Democrats have demanded Republicans make concessions, with a particular focus on extending enhanced Affordable Care Act subsidies that expire this year. Around 20 million Americans could see higher insurance bills unless Congress acts...Democrats also want to restore Medicaid funding that was cut, and unfreeze federal spending approved by Congress but withheld by Trump administration officials....
Trump has cast Democrats as “crazy” and said blame for a shutdown would fall on them....[end quote]
Trump's statement shows that the meeting is just another photo-op for Trump to grandstand -- he has no intention of negotiating in good faith.
The shutdown will almost certainly happen on Wednesday. (Coincidentally Yom Kippur, the Day of Atonement.) Critical services would continue, and Americans would continue to get Social Security payments and mail deliveries.
The last U.S. federal government shutdown, which lasted from December 22, 2018, to January 25, 2019 (a total of 35 days), saw a positive reaction from the S&P 500 index. During this 35-day shutdown, the S&P 500 returned a gain of approximately 10.3%. Even though Trump is promising to fire (not just furlough) many government workers during the shutdown the markets have completely ignored this.
As I post every week in the Control Panel, key indicators show the markets are overvalued. Morningstar says, "A measure of caution is warranted for investors." This is their delicate way of saying that several markets are in a bubble.
https://www.morningstar.com/markets/what-7-key-ind...The economy is growing strongly. 2Q25 Real GDP growth was 3.8%. The Atlanta Fed's GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 was 3.9 percent on September 26.
As expected, the Federal Reserve cut the fed funds rate by 0.25% in September even though the PCE inflation rate, like the CPI, is high. Every underlying inflation factor is "in the red" - more than 0.5% above the Fed's goal.
Quarterly annualized percent change
Quarter CPI Core CPI PCE Core PCE Updated
2025:Q3 3.24 3.39 2.82 2.91 09/26
The Fed is supposedly lowering the fed funds rate to improve the job market, despite the strong growth in the economy and high inflation. But that might not help.
https://www.wsj.com/finance/investing/jobs-market-...
Rate Cuts Might Not Cure What Ails the Job Market
Tariffs, tight credit weigh on hiring plans while some channels for rate relief are clogged
By Justin Lahart and Ruth Simon
The Federal Reserve resumed its interest-rate cutting campaign earlier this month in an effort to reverse a stall in the job market. The problem: The hiring drought can’t be cured by lower interest rates alone, at least not soon.
Lower rates will help by bolstering demand, especially for interest-sensitive purchases such as houses. But many businesses say their problem, rather than demand, is a panoply of issues from high costs and tariffs to tight credit. The usual levers through which lower rates initially boost the economy—rising stock prices and lower mortgage rates—are also less potent than usual. ...
The Fed’s actions won’t make a difference unless they affect the cost of ingredients — which have jumped in response to tariffs — or of labor...
A survey by the Federal Reserve Banks found that 52% of small-business applicants (with small business meaning an “employer firm” — a business with at least one employee in addition to the owner) were approved for all the financing they asked for in 2024, down from 62% in 2019.... [end quote]
Small businesses (defined by the Small Business Administration as those with fewer than 500 employees) employ approximately 45.9% of American workers in the private sector. These companies, many of which are very small (self-employed or < 10 employees) have no access to the bond market for financing. Cutting the fed funds rate won't help them employ more people. Even big companies like Starbucks are laying off.
The options market is predicting two more 0.25% cuts in the fed funds rate by the end of 2025. This is likely to lead to higher inflation but unlikely to help the job market much.
President Trump is frantically trying to pack the Fed to bring the fed funds rate down to 1%. He doesn't seem to understand that the fed funds rate is an overnight rate. Bond traders will force the long-term rates higher if they anticipate inflation. That will push mortgage rates higher.
In fact, the Treasury yield curve is already starting to get steeper. Long-term bond yields are beginning to climb even as the short end is dropping.
The stock market continues its rising trend. The trade which has been strongly risk-on for weeks has hesitated in the past week. The Fear & Greed Index is neutral. VIX is low.
The Price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), is 40 compared with the historic median of 16. The bubble continues to inflate. The housing bubble also continues to inflate.
Gold, silver, oil and natgas are rising. Copper is gradually rising after its sudden drop in August.
The Chicago Fed’s National Financial Conditions Index (NFCI) which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems is steady. Conditions are very loose, providing a tsunami of credit to inflate the bubbles.
The METAR for next week is sunny. I don't think the government shutdown will adversely impact the markets.
Wendy
https://www.clevelandfed.org/indicators-and-data/i...https://www.atlantafed.org/research/inflationproje...https://fred.stlouisfed.org/series/CPGDPAIhttps://www.atlantafed.org/cqer/research/gdpnowhttps://www.cmegroup.com/markets/interest-rates/cm...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/candleglance.ht...https://www.cnn.com/markets/fear-and-greedhttps://www.multpl.com/shiller-pehttps://www.chicagofed.org/research/data/nfci/curr...https://www.chicagofed.org/research/data/nfci/curr...https://fred.stlouisfed.org/series/CSUSHPINSA
