Stalemates And Interest Rates
October 10, 2025
September brought the first rate cut of 20251, experienced strengthened consumer sentiment2, and closed with positive returns in both equities and fixed income. Despite this pleasant reprieve over the last month, uncertainty still prevails in trade policies, currency exchange rates, and an ongoing government shutdown over budget disputes. Amid this mixed environment of rate cuts and political concerns, domestic equities closed +4.35% and +6.55% as tracked by the S&P 500 and NASDAQ indices, respectively. Moving internationally, developed markets returned +3.30% as tracked by the MSCI EAFE Index, and emerging markets +6.57% as tracked by MSCI Emerging Markets Index. Notably, the index closed +28.17% year-to-date through the third quarter, just topping +28.13% return for the same time frame in 2017 when it went on to return +37.81% for the year.
Debt markets returned +1.33% as tracked by the Bloomberg U.S. Aggregate Total Return Value Unhedged Index. Movement in the index was largely influenced by interest rates. While many market observers had anticipated such and were largely unsurprised by the news, the choice to cut rates was not an altogether obvious one to some investors because of the continued inflation and the uncertain tariff environment. Despite the ongoing inflationary pressures at the long end of the yield curve, the decline in the federal funds rate has encouraged a shift towards a normal yield curve environment. In addition to the rate cut, Powell’s commentary following the meeting gave expectations of continued easing. Bloomberg’s World Interest Rate Probability (WIRP) function is pricing in at least one more cut this year. While initially a refuge from the turbulence experienced in the former half of the year, debt has become more right-sized as equities and small caps have begun to pull their weight over the last quarter.
Although September appeared to bring positive news to investors, consumers, and business owners, October did not experience quite as nice of a start. Just as the clock struck midnight on September 30, the government shut down because congress had failed to agree on budget proposals for their fiscal year which began Oct 1, 2025. The broader implication to consumers is typically represented in consumer sentiment measures but the full severity will really depend on it duration. All said, equity and fixed income markets have both persevered in the days following this political turbulence. Moreover, early April lows have become merely a ghost of the past as many diversified portfolios have not only recovered but also performed well.3
Hazel Allen
Portfolio Management Analyst
1https://www.federalreserve.gov/newsevents/pressreleases/monetary20250917a.htm
Published September 17, 2025; Accessed October 1, 2025
2https://www.apolloacademy.com/the-economy-is-strong-and-inflation-is-high/
Published October 30, 20205; Accessed October 1, 2025
3https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/ Reference Slide: 56
Published September 30, 2025; Accessed October 1, 2025
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
Bloomberg U.S. Aggregate Total Return Value Unhedged Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Th index includes Treasuries, government-related and corporate securities, MBS(agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
The MSCI EAFE Index (Europe, Australasia, Far East) is an unmanaged free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is a float-adjusted market capitalization index.
A yield curve is a graphical representation of interest rates (or yields) for bonds of the same credit quality but different maturities. It plots the relationship between the time to maturity of a bond and its yield.
The term federal funds rate refers to the target interest rate range set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.
Bloomberg's World Interest Rate Probability (WIRP) function is a chart that shows the probability of different interest rates for the US benchmark rate. The chart is based on interest rate caps and floors, as well as options on Treasury futures.
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