Surprisingly Hot
Just like our recent weather in Minnesota, capital markets have been surprisingly hot. The volatility experienced earlier in the year remained at bay, and investors benefited from growth across most categories of investments. Markets were bolstered by a stronger-than-expected revision to second-quarter GDP estimates, indicating that U.S. GDP grew at an annualized rate of approximately 3.8%. (annualized).
However, despite the strong Q2 data, forecasts suggest economic growth will slow in the latter half of the year, with primary concerns centered on weakening labor markets and the inflationary impacts of trade policies. In response, the Federal Reserve delivered a long-awaited rate cut in September. They also signaled that three additional cuts could come by spring, depending on how inflation and labor market data evolve.
The news of rate cuts was welcomed by many, especially borrowers eager for lower mortgage and business lending rates. Savers, on the other hand, were less enthusiastic, as rate decreases typically lead to a drop in money market and CD rates over time. Stock markets, which generally favor low interest rates, were buoyed by the prospect of further cuts.
The continued market rise marked a welcome departure from the typical early fall trend. September has historically been the weakest month for the stock market, with an average decline of 0.88% over the past 50 years. However, 2025 bucked that trend, with the S&P 500 gaining 3.22% for the month—though it softened slightly in the final week as concerns about a potential U.S. government shutdown began to mount.
As of this writing, Congress has not yet passed the necessary funding legislation, and the U.S. government is slated to shut down. The last shutdown occurred at the end of 2018 and lasted 35 days—the longest in U.S. history. Numerous services would be affected, including closures of national parks and museums, and delays or limitations in operations at agencies such as the IRS, Social Security, Passport Services, Federal Courts, and Food Assistance Programs. Many government workers are either furloughed or required to continue working without pay until a funding bill is passed.
Even if back pay is eventually issued, the drop in economic activity can have a significant impact. The cost of the 2018–2019 shutdown was estimated at $11 billion, with $3 billion considered a permanent output loss—economic activity that was never recovered. The ultimate cost of any shutdown is heavily dependent on its duration. If resolved quickly, the impact is minimal; the longer it lasts, the more detrimental it is to the U.S. economy.
The other major legislative news of the quarter was the signing into law of the One Big Beautiful Bill Act on July 4. We published a summary that can be found at: https://prattwealth.com/one-big-beautiful-bill-act-tax-summary/ If you have questions about how the tax law may impact you, please do not hesitate to contact us.
We hope you enjoy a wonderful Fall!
The Pratt Wealth Management Team
