Major U.S. Stock Indices
Technology continued to reshape the investment landscape, while consumers displayed impressive stamina, helping push the S&P 500 and Nasdaq to fresh highs — driven by the “Magnificent 7” tech giants, which now account for roughly 35% of the S&P index.
Encouragingly, the rally stretched beyond the familiar tech giants. Small and mid-cap stocks also joined the upswing for the first time in months, broadening market strength and signaling that the economy’s underlying vitality remains intact.
Consumers Keep Spending
U.S. gross domestic product (GDP) growth in Q3 is expected to remain strong. The Atlanta Fed’s GDP tracker now puts third-quarter growth at 3.9%, up from an earlier estimate of 3.3%, citing consumption data and a narrower trade deficit in August.
The biggest engine of growth remains the American consumer. Discretionary spending — often the first to weaken when households feel stressed — led the way this quarter. Durable goods orders in August beat expectations, and income and spending reports confirmed that families are still spending.
Business investment gained momentum in Q3 as companies responded, in part, to healthy consumer demand. Orders for capital goods and machinery jumped in August, giving manufacturing a welcomed boost. Meanwhile, the U.S. trade deficit narrowed, providing a positive offset to tariff pressures and helping support overall growth.
Beneath the Hood on Consumers
Beneath strong headline spending, a divide is widening. Higher-income households continue to drive luxury purchases, travel, and discretionary spending, while lower-income groups face pressure from inflation and rising borrowing costs. Credit card delinquencies are edging higher, and some regional data points to pockets of weakness, especially in lower-tier retail.
The consumer savings rate, now around 4.6%, suggests households are dipping into reserves but are not yet overextended. For investors, this means the consumer story is mixed: premium brands and services are holding up well, while budget-focused retailers may face more turbulence.
Housing Headwinds
The U.S. housing market stumbled in Q3. Building permits sank to pandemic-era lows, while new single-family starts dropped 10% from last year. High prices and steep borrowing costs kept many would-be buyers on the sidelines, and inventory swelled to its highest level since the Great Recession, excluding the Covid years.
The Fed Walks a Tightrope
Inflation remains sticky, with core personal consumption expenditures (core PCE) holding at 2.9%. Still, as expected, the Federal Reserve delivered a single quarter-point cut in September, bringing rates to 4.25%. Officials framed the move as a “risk-management” adjustment, meant to ease borrowing costs without overheating demand. The labor market, however, is sending mixed signals. Unemployment remains relatively low at 4.3%, but job growth has slowed, and wage increases are moderating.
Looking ahead, the Fed must reconcile any inflation concerns with signs of softer growth. Given the current economic environment, we anticipate two more rate cuts of 25 bps each in 2025. The Fed, though, is data dependent. A weakening labor market will generate two cuts, but if inflation rises due to the impact of tariffs, those cuts will be off the table.
Balancing Opportunity and Risk
The U.S. economy remains impressively resilient. Consumers and businesses continue to sustain momentum, even as housing weakness, lofty valuations, and policy risks call for vigilance. Technology and AI have delivered exceptional returns but also have risk. Diversification remains the best way to smooth out volatility.
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Your team at Platt Wealth Management