Outside of the markets, there are serious issues regarding the government shutdown that will impact many Americans starting this week. Food aid is at risk of lapsing for 42mm Americans, the nation’s airports are increasingly snarled, and the 24mm Affordable Care Act health-plan enrollees are confronted with sharply higher premiums.
For commerce, the biggest concern lies with air traffic controllers, who are currently working without pay. Major U.S. airlines operate roughly 27,000 passenger flights each day across domestic and international routes—not including smaller carriers or freight operations from companies like UPS and FedEx. Delays at major airports began last week and could worsen as controllers seek paid employment elsewhere. This mounting disruption will likely increase pressure on the Senate to end the shutdown, perhaps paving the way for a deal after Election Day (Tuesday).
The Fed Blinks, But Keeps Its Options Open
The Federal Reserve cut interest rates by 25 basis points on Wednesday, bringing the federal funds target range down to 3.75%–4.00%. The move marks a cautious shift toward policy easing, as economic data show signs of slowing growth and a softer labor market.
The Fed’s decision lands in the middle of a government shutdown and just days before Election Day, adding a political layer to its already complex calculus. Fed Chairman Powell avoided direct commentary on fiscal policy but noted that “uncertainty around government operations” is a risk to growth.
Alongside the rate cut, the Fed announced that it will end the runoff of its balance sheet—commonly known as “quantitative tightening”—starting December 1st. This change means the Fed will stop shrinking its holdings of Treasury and mortgage-backed securities, a signal that it wants to stabilize liquidity conditions after a year of tightening financial conditions. Over the past 3½ years, holdings have declined by $2.2 trillion, from 35% to about 21% of nominal GDP.
Prospective Rate Policy
The December FOMC meeting now becomes the focal point. Without reliable government data—many agencies are closed—the Fed will rely more heavily on private-sector reports and market indicators. That raises the risk of policy error if the slowdown deepens faster than expected.
For investors, the message is clear: the Fed is pivoting, but not fully. Rates are likely past their peak, yet the easing cycle will be gradual and data-dependent. Markets may continue to oscillate between optimism about lower rates and concern over slowing economic activity.
Slower Growth Ahead for the Tech Titans
| Company | Average EPS growth, last four quarters | Estimated average EPS growth, next four quarters |
|---|---|---|
| Alphabet | 37% | 5% |
| Amazon | 54% | 2% |
| Apple | 31% | 7% |
| Meta | 37% | 1% |
| Microsoft | 19% | 16% |
The table above shows a clear deceleration in earnings growth momentum among the largest U.S. technology firms (according to analysts). Over the past year, these companies delivered strong EPS growth—driven by cost cuts, margin expansion, and post-pandemic normalization—but estimates for the next four quarters point to a dramatic slowdown.
- Alphabet, Amazon, and Meta: Are expected to see low single-digit EPS growth, signaling that the easy efficiency gains are behind them.
- Apple shows iPhone demand and services expansion, but not the kind of breakout growth of past cycles.
- Microsoft is the clear standout underscoring a dominant position in enterprise cloud and AI adoption.
The overall picture suggests that the AI trade is maturing: while the technology remains transformative, revenue and earnings growth will be more selective going forward. Markets may begin to favor companies with sustainable earnings visibility over those priced for perfection.
Stock Market Sector Analysis and Dispersion
The multi-sector line chart below paints the picture of the U.S. stock market’s evolution through 2025, highlighting a stark “increasing dispersion” among key sectors since the April lows.
At the forefront, Semiconductors (SMH) and Technology (XLK) lead the surge higher underscoring the AI boom, chip demand from data centers, and innovation-driven gains that have propelled names like NVIDIA to record highs.
This widening gap signals a concentrated market where market breadth continues to narrow. While the headline indices like the S&P 500 grind higher (VOO), the underlying dispersion could amplify volatility if economic data softens or interest rates pivot unexpectedly. Not to mention that it looks like several sectors have been turning lower over the past few weeks.
The S&P 500
The S&P popped higher on Monday on some trade relief news regarding China but began giving back the gains after the Fed meeting on Wednesday. As you can see below, stocks have been going vertical since April and are extended in relation to the 50 and 200 day moving averages – at some point they will converge.
For now, stocks are holding up but momentum is coming to a standstill and it looks like upside is becoming limited as breadth narrows. My biggest concern is that the government re-opens and the inflation and labor data are reported worse than expected. This scenario would certainly be taken as a negative for equity prices.
Thank you for being a reader!
President, Kisco Capital
