Stocks Breathe A Sigh Of Relief With Inflation Tracking As Expected

Market Commentary – October 6, 2025

The Federal Reserve (Fed) began a new rate-cutting cycle with a 25-basis-point reduction on September 17, aiming to support the labor market, while balancing its dual mandate of keeping inflation in check. That’s why last week’s Core PCE (Personal Consumption Expenditures) report carried particular weight with markets. PCE came in as expected at 2.9%, and both the stock and bond markets responded with a sigh of relief that it was not worse than expected. The Fed’s inflation target is 2%, a level they don’t expect to reach for several more years. In fact, Core PCE hasn’t been at 2% since early 2021, nearly four years ago.

Government Shutdowns Don’t Have A Major Impact On Equities Historically

Risks are rising that we get at a temporary shut down in the government. This sounds terrible, but the country has been here many times before. Historically, there is really little to no impact on the stock market when a shutdown occurs. However, there have been times when the S&P 500 has reacted with a modest correction. Currently, with equity markets overbought and trading at an elevated 23x price-to-earnings ratio, we could enter the month of October with some volatility. We have been expecting a 5%-10% pullback. But keep in mind that October is the time of year we would expect good buying opportunities for the seasonal year-end rally.