This week Doug discusses the recent election outcomes, the ongoing government shutdown, and what we know (and don’t know) about the labor markets. He also takes a deep dive into current market valuations and what those could mean for portfolios.

Watch the full video below:

TRANSCRIPT:

Hello, everybody, and welcome to Wealth Enhancement's seven Market Movers video series. My name is Doug Huber. I'm the Deputy Chief Investment Officer and excited to be here today to talk about what's going on this first week of November 2025. 

Still a lot of headlines in the news this week. We had an election docket on Tuesday, mostly state specific. And, you know, we saw a pretty big sweep from the the Democratic Party in those elections. Generally, the market did not really respond to those. These are elections that that likely have very little in the way of impact to to the the economic picture. But interesting nonetheless, and I think there will be a lot more discourse on kind of what the future for midterms might look like on the heels of the results of this election. 

The government shutdown continues to roll on. We're seeing real disruptions now coming to the airline sector as secretary Duffy has indicated that they will curtail flights by 10% to 40 large airports. And so I think this is could be an impetus for pushing the congressional leaders to maybe get a deal done here. This will have real impact and the constituency will not be happy by this. 

And then finally, we had some labor data this month. Government data is still on hold and so we're relying on private sector data, but we did see the ADP numbers come in slightly better than expected, which I think the market did take positively. Interestingly, still soft in the greater scale of things, but certainly better than anticipated. But that was quickly trumped by the layoff numbers that came through that certainly were very weak. I think the statistic I saw was that it was the weakest October for layoffs in 22 years. I think 2003 was the last October that was worse than this. And I think on a quarterly basis, also one of the worst in several years. And so that is something certainly we will be paying attention to. 

I think the markets have retreated a little bit. We've had a mix of up and down days, but on the week through Thursday, the S&P 500 is down roughly 1.25%. The more tech heavy Nasdaq down closer to 2%. And the 10-year US Treasury benchmark rate has remained roughly flat for the week. I think what the market is trying to digest here is just truly what is the strength of that labor market is that's really what I think the Fed is going to make their decisions based on. 

We've talked about the fact they have a dual mandate of inflation and labor. I think inflation for the most part is probably relatively range bound and a surprise to the upside is being priced in is somewhat unlikely at this point. But I think the real question mark is what is going on in the labor markets, especially because we are lacking the data coming out of the government bureaus since the shutdown. And so it'll be interesting to see if there is a surprise when the government does eventually open up. Do we see a real softening in the labor market? 

And so with that, we've also heard a lot of talk about valuations. And so I thought this week it would be interesting to take a quick dive into kind of what's going on, what does that mean and what does that mean for portfolios? I think, yes, if you look at it on a blanket basis, most markets are not cheap, right? Valuations are quite high across both equities and fixed income markets regardless of kind of how you slice that pie. 

The fact of the matter, though, is that also is a signal that the market is willing to take risk. It is willing to pay for high quality businesses. It is willing to pay for growth. And I think that is what the market is telling us. Now where that gets a little bit nervous for some market participants is when does the valuation get too high, right? When does risk start to come off the table? And if everybody's in the same kind of risk assets when they do de risk, right, that's when we see markets go down. So is there quote unquote a bubble? That's a clickbait term that is I think used a lot. We don't believe we are in a bubble, but it is certainly worthwhile pointing out that the valuations are quite high. 

Now the flip side to that, a counterargument to that could be that the quality of of these businesses, the quality of the debt they issue is really good today. Right? Earnings are growing. Balance sheets are strong. And so as you'd imagine, people are willing to pay for that. Right? They're willing to pay for that that quality asset that's going to grow faster than the economy. And so as such, you've seen valuations climb up and market structure has also helped in that where a lot of money is in passive indices. And so obviously, when dollars flow to those ETFs that track the S&P 500 or the NASDAQ, more dollars inevitably go to those larger positions because they're what we call market cap weighted and the largest names are at the top. And so they get more, so they get bigger. And so we have seen a bit of that. 

What does that all mean? Are we calling the top? Absolutely not, right? We do not have a crystal ball but we certainly pay a lot of attention to where are there risks and where are there opportunities. I think there are pockets of the market that are more attractive on a valuation basis. A lot of those that look cheap might be cheap for a reason. But other areas, whether that's internationally or pockets of fixed income, you get paid a little bit more for still relatively good assets, etcetera, are areas where we are looking for opportunity. And if you think about it, portfolios aren't typically just in one index like the S&P 500, right? 

We typically recommend diversified portfolios. I think this is an environment more so than we've experienced in the past where that diversification is going to continue to shine, we believe. And so we will continue to monitor what the markets are doing. We will continue to monitor the macroeconomic data that is going to kind of dictate the pace of our economic growth or contraction. We will continue to monitor the Fed's decision as that has a lot of impact into how risk assets are priced. But I think today, you know, our risk posture is relatively neutral in the fact that we believe that there's still a lot of good opportunity, although that opportunity might be a little more expensive than it has in the past. And likewise, there's still some risk in the markets. And so we we want to make sure that we are not too conservative nor too risky at this stage. And I think you'll see that in kind of how we've positioned portfolios. 

So we look forward to coming back next week with hopefully some good news as it relates to maybe the end of this government shutdown, maybe some good news around if we get some labor statistics back, perhaps they are better than the market might anticipate. And so we will keep a close eye on that. But between now and then, we hope you have a great week and we look forward to talking with you next week. Thank you so much.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. 

There is no guarantee that asset allocation or diversification will enhance overall returns, outperform a non-diversified portfolio, nor ensure a profit or protect against a loss.

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