In last quarter’s newsletter we discussed the impact of tariffs on inflation and how the stock market reacted to Liberation Day and the tariff extensions. Overall, the markets have largely ignored all the “noise” coming from Washington D.C. and continued to set new record highs. The S&P500 gained 7.79%, the Nasdaq surged 8.82% and the Dow Jones Industrial Average rose 5.22% in the 3rd quarter. The markets were led to fresh highs driven by the “Magnificent 7”tech giants, which now account for roughly 35% of the S&P 500’smarket capitalization. We saw NVIDIA become the first company to hit a market capitalization of $4.5 trillion!
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Encouragingly, the rally stretched beyond the familiar tech giants. Small and mid-cap stocks joined the upswing for the first time in a while, broadening market strength and signaling that the economy’s underlying vitality remains intact. Still, rising valuations - especially in AI driven sectors -underscore the need to balance opportunity with caution as the year winds down.
All the risks we have discussed for several newsletters are still present. Concerns between Russian/Ukraine and Israel/Hamas, trade tensions with China and the rest of the world as countries continue to negotiate tariffs, inflation, interest rates, the status of Federal Reserve Governors, a cooling housing market and of course political violence.
The newest concern is the recent shutdown of the Federal Government. One market-related result of the shutdown is the impact on economic data being released that the Federal Reserve (amongst others) uses to make decisions. The Atlanta Fed’s GDP tracker now puts the third quarter growth at 3.9%, up from an earlier estimate of 3.3% showing strong economic growth.
Consumer spending has remained strong, which is good and bad. Wealthier households continue to make luxury purchases, travel and discretionary spending while lower-income households face increased pressure from inflation and rising borrowing costs. Credit card delinquencies are edging higher, which is a warning sign to continue to watch.
The Federal Reserve cut interest rates in September by a quarter-point, bringing rates to 4.25%. Most professionals anticipate two more cuts before the end of the year, but the current government shutdown and impact on financial data might impact their decision and cause them to be cautious with cuts.
Let’s look at what a government shutdown means. A government shutdown occurs when Congress fails to pass the necessary funding legislation to keep the federal agencies fully operational. In a partial shutdown like the one we are in now, some agencies remain funded and continue running while many “non-essential” services pause until a funding agreement is reached.
A shutdown can last a few days or much longer, depending on how quickly lawmakers reach a compromise. In the meantime, some federal services may experience delays or limited availability.
Paragon will continue to monitor the situation and how the shutdown could affect you and we will continue to keep you updated.
Whether your focus is retirement, tax efficiency, or charitable giving, here are some valuable ideas to consider before December 31st:
If any of these resonate with you, we would be happy to help you run the numbers or coordinate with your accountant. Now’s the time to finish the year strong, and we are here to help however we can. Reach out with any questions or needs.
Paragon has had a busy quarter welcoming in new talent to support your needs and our growth. Please help us welcome Dusan, Daniel and Brady to the team. If you’re in the Kansas City office, please make sure you meet them, if outside KC you might see emails or get a phone call from them!
Our website and YouTube channel offer a wealth of information. You can find our videos through our website at:https://www.paragoncap.com/quarterly-market-insightsor on our YouTube channel at https://youtube.com/@paragoncap. If you subscribe to our YouTube channel by hitting the “subscribe” button, you will be notified when new videos are posted.
In addition, for up-to-date news and thoughts from Paragon, plus interesting articles on current topics, we encourage you to follow us on LinkedIn and/or Facebook (links below). We have company pages for both and appreciate your liking and/or following us.
Also, please share your experiences with friends and family; we love the opportunity to help those you know with their financial success.
Whether you feel as if you’ve outgrown your advisor or you just want a fresh perspective on portfolio strategies in our current market, our team of experts is here for you.
