Markets Up, Risks Rising

Key Takeaways

1. Fed cuts rates for the first time in 2025, lowering to 4.25% as job market softness forces action under its dual mandate.

2. Markets were pricey even before the cut, with stocks at record highs and valuations stretched.

3. Bond yields rose anyway, showing investors worry more about U.S. debt and inflation than Powell’s promises.

4. AI money machine keeps spinning, with Nvidia and CoreWeave making mega-deals that look more bubbly than productive.

5. Geopolitics and inflation remain sticky, from Russian airspace incursions to stubborn consumer prices.

The headline story this week is the Federal Reserve’s first rate cut of 2025. They trimmed the federal funds rate to 4.25%, ending months of waiting. Why? The Fed’s dual mandate says they need to balance price stability with maximum employment. Inflation has cooled but is still sticky, while the job market has shown signs of slowing. That gave Powell the excuse to ease up. It’s worth noting, though, that markets were already looking pricey even before the cut. Stocks at record highs plus lower rates is a cocktail that tastes sweet in the short term but can leave a nasty hangover later.

Other central banks weren’t so eager. The ECB and Bank of England stayed put, while Japan kept rates pinned at 0.5%. Their cautious stance signals patience, but also skepticism about whether the global slowdown is as bad as the Fed fears. Investors, meanwhile, didn’t exactly follow the Fed’s script. Despite the cut, the U.S. 10-year yield climbed above 4.1%, as bond markets focused less on Powell’s words and more on America’s swelling debt and fiscal challenges.

Wall Street, however, threw a celebration. The S&P 500 and Nasdaq both set new records, and small-caps joined in. It’s as if the market is living in a world where money is still free, even though rates are nowhere near zero anymore. Gold also set a fresh record above $3,600 an ounce—apparently investors can’t decide whether they want safety or speculation, so they’re buying both. Oil slipped to the low $60s per barrel, weighed down by oversupply.

On the corporate front, FedEx beat earnings expectations but offered softer guidance for 2026 thanks to tariffs and weaker trade. The AI circus rolled on, with Nvidia pledging a mind-bending $100 billion to OpenAI and CoreWeave locking in a $6.3 billion order. These kinds of related-party deals raise more questions than answers. Are we funding real productivity growth, or just blowing air into another bubble?

Geopolitics added more uncertainty. Russian jets violated NATO airspace multiple times, sparking new warnings from European leaders. Meanwhile, at the UN General Assembly, world leaders discussed everything from Gaza to climate change. It feels like a stack of powder kegs waiting for a spark, which markets seem more than happy to ignore.

Supply chains are still messy, with tariffs, shipping delays, and rerouting headaches raising costs for companies and consumers. Inflation in the U.S. ticked up again to 2.9% in August, while Germany saw a similar rise. Consumers are adapting in quirky ways: trading down for groceries but splurging elsewhere, a reminder that human behavior doesn’t always follow neat economic models.

So where does that leave us? Rates are falling, stocks are soaring, and risks are piling up. It’s a market priced for perfection at a time when the fundamentals—employment, inflation, productivity—aren’t exactly perfect. As Buffett would say, the market is there to serve you, not instruct you. My advice to myself, and maybe to you, is to remember that wealth comes from real earnings power, not just from cheering rate cuts. If you enjoyed this breakdown, forward it to a friend who could use a little clarity amid the noise.

Happy investing!
Josh

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.