This week brought some of the most “significant shifts we’ve seen in 2025” according to Deputy CIO Doug Huber. The Federal Reserve delivered its first rate cut in nearly a year, as tariffs continue to add inflationary pressure and the labor market remains soft. Yet equities, driven by tech, are pushing toward record highs after big moves from industry leaders.

In this week’s 7 Market Movers video, Doug breaks down what’s driving these shifts, what risks remain, and where markets could be headed next. Watch the full video below.

TRANSCRIPT:

Hello, everyone, and welcome to this week's wealth enhancement market movers video series. My name is Doug Huber, and I'm the deputy chief investment officer. 

This week has brought some of the most significant shifts we've seen in 2025. We've seen the Federal Reserve's first rate cut in over a year, softening labor data, tariff pressure still showing themselves, and then renewed optimism in tech tech and growth sectors. So let's go through what's driving markets for for this week. 

First, let's start with the Fed rate cut. On September 17th, the Federal Reserve cut the federal funds rate by 25 basis points, bringing their target range from 4.0% to 4.25%. It's actually the first cut in 2025 and the first in almost a year. The rationale has really been this weakening labor market that's really you know, they they have a dual mandate. 

We've heard the Fed talk about labor market and inflation. Inflation certainly captured most of the headlines over the last few years and and then renewed resurgence after the tariff discussion. But as of late, they've really been focused on on the labor market signals, especially from jobless claims and weak payroll growth. And so that's something we're watching. I think the Fed's also signaling that more cuts may be likely through year end. Today, the market's actually pricing in an additional 2-25 basis points or 0.25% rate cut before the end of the year. But the that remains some divergence on the between Fed officials. 

We've seen some dissent on on who wants to move faster, who wants to move slower, and I think it's really going to be data dependent. But what we understand from past cycles is usually it takes a lot of data for them to to move in one direction, and it's gonna take a lot of data for them to move off of it. And so unless we saw really, really sharp inflation signals, or or a dramatic change in the labor market picture, our expectation is we will see continued rate cuts through year end. We're talking about the labor markets a lot, so let's get into it a little bit. 

Jobless claims do remain elevated. They had a they they jumped significantly to a multiyear high, but they did retreat slightly this week to roughly two hundred and thirty one thousand. And so that's better than has been expected, but it's to be determined was was the was the high reading from from the last reading just a blip in the radar as there was some hand, you know, hand off or handful of layoffs, or is this something more pervasive that we are gonna see continued weakness in the labor sector? 

In August, the jobs number was weak. It was only 22,000 added, which is well below the 75,000 consensus, and the unemployment rate has ticked up from 4.2% to 4.3%. That being said, labor force participation has drifted much lower, and that's a reflection of not only longer term demographic shifts here in the United States, but also a function of policy pressures and particularly kind of immigration policies. And so there's a lot of analysis going into these labor market numbers, and I think it's something that we're watching very closely as it it's going to be it's it's needs to be determined. Are these one off instances or more of a a softening trend that that will continue to go on? 

We talked a little bit about inflation and tariffs. Inflation continues to remain a concern. Recent CPI data did come in hot, particularly in those tariff effective goods. And so this debate between is this transitory or persistent continues. There's a there's a camp that believes because the PCE numbers, which is the Fed's preferred gauge of judging, inflation have been pretty good and that there was a one time bump but they've seemingly come back. It it is transitory. There's others who believe that this will be more persistent. It's not just a one time, change the to the to the inflation effect. And so, again, something that is on the radar that's being watched, but I think maybe maybe secondarily to labor market softness. 

Tariff policy is continuing to ripple through. Companies are certainly trying to mitigate the cost whether that's through supply chain and and adjustments or AI enablement, productivity gains, and also consumer price categories tied to imports like apparel and durable goods are showing stronger inflation contributions. And so that is what we would expect coming off this tariff pressure, but it'll be remain it remains to be seen, you know, is this a one time thing like I mentioned or or will this continue on? 

So far this week has been very positive in the equity markets. They've responded positively to the Fed rate cut. They've also responded positively to idiosyncratic events. Tech is leading the pack, and that's really been boosted by the standout moves from the video and Intel, including this announcement of a five billion dollar investment deal between the two of them. That that certainly opens up a lot of potential growth for both companies, and I think the market's responding positively to that. As we look to as we look to the broader markets and what they're doing, I think universally across whether it's the the S&P 500 bellwether, the more tech or growth oriented Nasdaq, or or the Dow. I think all are either pushing towards or into record territory this week, and so positive on the equity market side. 

Some weak spots are the companies that are sensitive to interest rate like housing and financials are still remaining cautious as they wait to see how dovish the Fed is going to be. And then also anything that's still tied to kind of our China trade talks, and and regulatory or antitrust investigations are are a little bit sensitive to until there's more clarity on on kind of that, corner pocket of the of the markets. 

On the rate side, the fixed income side, treasury yields have dropped somewhat, although the great cut of twenty five basis points has been priced in for some time. So we didn't see a sharp reaction to that news as the market had been anticipating that, but there's a lot of focus on what's going on in the longer end of the curve. The ten to thirty year part of the treasury curve is that is not something that is actively controlled by the Federal Reserve, especially by their interest rate policy. And so we've seen the front end of the curve where we knew there was going to be impact come down while the longer end has stayed elevated, and that's what we call term premium or risk premium. As the markets are still trying to say to or or indicating that, yes, you know, yes, it's great that markets are coming down where we control them, but we're demanding a little bit more payment for that longer duration piece because guess what? You know, the the the US government is over indebted, and we wanna see some fiscal responsibility before we're going to give you credit for that. And so that is something to watch. 

Markets are continuing to price in two more fed break cuts by year end. We talked about that, but the exact timing of those will be dependent upon the data. Key risk to watch, I think tariff policy remains the wild card. Any new escalation, especially with China, or any other major trade other any other major trading partner certainly could reignite some inflation concerns. Inflation trends in non tariff goods, especially rent and services, will be important to watch whether that stays sticky or starts to subside. And then I think the most important as we've certainly belabored here is that the labor market data remains critical. 

We're gonna be watching the next job reports, unemployment claims, and wage growth. If that weakness intensifies, that could give more aggressive cover for, for the Fed to cut rates additionally. Fed communications have been under a microscope, what we call the dot plot or the forward guidance will be watched for how many cuts officials expect, and then how fast and how they weigh inflation and labor data. So in short, this week's been marked this week marked a turning point. The fed broke from its year long pause to cut rates citing labor market softness. Equities rallied especially in tech, and tariffs and inflation remain persistent background risks. 

So with that, we look forward to getting back to you next week. I'm sure we'll have more, more data to to talk about, more market moves to talk about. And so thank you very much for tuning in this week.

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. Investing involves risk, including possible loss of principal.

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