November 10, 2025
Economic Commentary
Investment markets built on their robust 2025 returns in October. Global equities appreciated more than 2% for the month and core bonds returned 0.4%, bringing year-to-date returns for a balanced portfolio to nearly 14%. Looking ahead, there are uncertainties related to an extended federal government shutdown, trade policy headlines and persistent geopolitical tensions. Nevertheless, markets have continued higher and there is reason for optimism as the Federal Reserve makes a pivot toward easing policy rates.
Federal Government Shutdown
As of this writing, the U.S. government continues to be in a partial shutdown, which is beginning to exert a tangible, negative effect on the economy. The primary impact to growth is the direct loss of government services and a reduction in consumer spending due to the estimated 750,000 federal workers furloughed and another 650,000 working without pay. The longevity of the shutdown will determine its impact on Q4 growth and its resolution remains a key variable for the near-term outlook. Prediction markets place 50% odds on reopening by November 15 and 83% on reopening by November 30. Either outcome suggests that this will likely be the longest government shutdown on record, but also likely precludes any meaningful long-term impact on growth.
U.S. Fiscal Update
The U.S. Treasury recently released its full-year fiscal data, confirming total revenue of $5.2 trillion and total spending of just over $7 trillion, resulting in a budget deficit of $1.8 trillion for fiscal year 2025. This figure, the third largest on record, underscores the structural fiscal imbalance facing policymakers.
Looking ahead to fiscal year 2026, similar deficits of $1.8-2.0 trillion are expected by forecasters. A significant element of rising deficits are net interest outlays, which totaled nearly $1 trillion in fiscal year 2025. The level of interest outlays depends significantly on monetary policy set by the Federal Reserve, which pivoted to reducing interest rates in September.
Federal Reserve’s Data Challenge
A direct consequence of the government shutdown is the indefinite delay of key economic data releases from the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA). The September jobs report was not produced and it would be optimistic to expect the October report to be released on November 7. The BLS did release a consumer price index (CPI; inflation data) report for September on October 24 (originally scheduled for October 15) so the Social Security Administration could tally its annual cost-of-living adjustment. However, White House officials stated that the October report would most likely not be produced – a historical first – as much of the data is gathered in person by government employees affected by the shutdown.
This lack of official data complicates the decision-making process for both investors and the Federal Reserve, which has explicitly tied its policy path to incoming economic indicators. In this environment, private surveys and alternative high-frequency data will take on an outsized importance for assessing economic momentum.
The Federal Reserve’s pivot to an easing cycle is arguably one of the most significant support pillars for the market. Following the 0.25% rate cut in September, market-implied probabilities and the Fed’s own projections signal a clear path toward further accommodation. The consensus forecast suggests a terminal rate of 3.25-3.50% by the end of 2026, implying at least two quarter-point cuts next year. This is a proactive policy adjustment aimed at sustaining economic expansion amid signs of slowing global growth and heightened domestic policy uncertainty. This accommodative stance has marginally lowered the discount rate, lending aid to equity valuations.
Tariffs – Continued Headline Risk
An evolving trade policy narrative continues to generate market-moving headlines. In October, US-China trade tensions continued with reciprocal actions, but also saw diplomatic engagement and agreement on a framework for a potential deal. In response to China’s October 9 export restrictions on rare earth minerals and battery components, the U.S. administration threatened new 100% tariff on all Chinese imports. The S&P 500 fell nearly 3% on the escalation but quickly recovered amid softening rhetoric from both sides. On October 26, negotiators reportedly finalized a framework for an agreement that would halt steeper American tariffs and Chinese rare earths export controls. On October 30, President Trump and Chinese President Xi Jinping held talks in South Korea where they were able to reach a truce. President Trump said the total combined tariff rate on Chinese imports will fall from 57% to 47% and the pact covered a range of trade issues including rare earth export controls, fentanyl trafficking and U.S. soybean exports.
Maintaining Discipline
During periods when the landscape is clouded by conflicting data – or a lack of data – and policy shifts, a disciplined and diversified approach to investing is paramount. Your commitment to a sound, long-term financial strategy remains the most reliable course for navigating the changes that lie ahead. On behalf of our entire team, thank you for your continued trust.