There’s been a lot going on in the financial news recently.
Let’s take a closer look at what’s behind the headlines and how we’re responding within your portfolio.
Today we discuss:
- Interest Rate Cuts
- AI Trends
- Consumer Spending
- Your Portfolio
Interest Rates: A Delicate Balancing Act
The Fed continues its tug-of-war between trying to reduce inflation and supporting a weakening labor market.
Inflation has fallen sharply (from about 9% in 2022 to about 3% today). However, getting from 3% down to the Fed’s 2% target is proving tricky due to the weakening labor market.
In late October, the Fed cut rates by 0.25%, following a similar move in September.
The key reason for these cuts is the softening job market. The tricky piece is that rate cuts can sometimes lead to inflation.
How?
When the Fed cuts rates, borrowing becomes cheaper for:
- Consumers (e.g., lower mortgage, credit card and auto loan rates)
- Businesses (e.g., lower costs for borrowing and new projects)
This generally stimulates spending and investment, which increases overall demand in the economy.
However, if demand outpaces supply, prices rise and inflation follows.
Many analysts anticipate more rate reductions in the months ahead. However, the Fed reiterated during their October meeting that future decisions will depend on incoming data, not political pressure or market expectations.
Consequently, with much of the government still shut down, the Fed’s relying heavily on private sector sources such as payroll data and state-level unemployment claims.
In fact, to help make up for missing data, ADP is now publishing a weekly version of its National Employment Report.1 ADP facilitates payroll for about 1 in 6 workers in the U.S.2
Zooming out, remember the current job cuts are largely a correction for over-hiring during the pandemic, amplified by a slowing economy. Also, the low unemployment rate (currently about 4.3%) suggests the economy is near full employment (meaning nearly everyone who wants a job has one).
AI Trends: Innovation Meets Speculation
AI continues to dominate headlines and investment dollars. While the potential is enormous, profits have yet to catch up with the spending (and likely won’t for some time).
Many of the major players, including Microsoft, NVIDIA and OpenAI are deeply intertwined through partnerships and cross investments.
For Example:
Microsoft has invested billions in OpenAI, which in turn relies on Microsoft’s cloud servers to power its technology.
NVIDIA supplies specialized chips that make advanced AI possible, and also invests in AI ventures like OpenAI.
This circular web of relationships accelerates innovation, however, it also concentrates immense power, which increases risk.
The opportunities are real, but so are the risks.
Insightful AI Resources:
Article: For an in-depth read, check out Capital Group’s recent article, Are we in an AI bubble?3
Podcast: During this podcast, a forensic accountant highlights what others are ignoring in regard to AI and more, No. 1 Forensic Accountant: the Coming AI Collapse.4
Consumer Spending: The 10% Driving the Economy
There’s another trend we’re watching closely: the concentration of spending among higher earners.
The top 10% of Americans now account for nearly half of all consumer spending.5
This dynamic can mask underlying economic weakness, especially if the job market softens further.
Despite headlines about layoffs at big companies, unemployment remains low. However, younger workers entering the job market are finding fewer openings.
Overall, if spending from the “top 10%” slows, it could weigh on GDP growth even without an official recession. Currently, GDP growth is forecasted at a healthy 3%.
Your Portfolio: Staying Prepared, Not Predictive
Periods like this—when economic indicators present a mixed picture—are why we emphasize planning over prediction.
Our disciplined investment process blends diversification, research and risk management to help protect your investments and long-term goals.
For retired clients drawing income, we’ve already set aside sufficient cash reserves to help avoid selling investments during downturns. We’ve also been taking profits from positions that have appreciated sharply and watching for new buying opportunities supported by data—not headlines or hype.
In times of uncertainty, discipline means focusing on what we can control; specifically, how we plan, prepare and respond. Markets will always move, but our process remains steady.
Learn more about our AI diversification approach in our post, AI Is Booming, Diversification Matters.
Sincerely,
–David Bunker, Financial Advisor & Licensed Fiduciary
Before You Go
Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
Sources:
1: ADP, ADP Announces National Employment Report Preliminary Estimate Publicly Available on a Weekly Cadence, https://mediacenter.adp.com/2025-10-28-ADP-Announces-National-Employment-Report-Preliminary-Estimate-Publicly-Available-on-a-Weekly-Cadence
2: ADP, https://www.adp.com
3: Capital Group, Are we in an AI bubble?, https://www.capitalgroup.com/advisor/insights/articles/are-we-in-an-artificial-intelligence-ai-bubble.html
4: YouTube/The Knowledge Project: No. 1 Forensic Accountant: The Coming AI Collapse, https://www.youtube.com/watch?v=E4wXp-DaW8g
5: Morning Brew, The top 10% of Americans account for nearly half of consumer spending, https://www.morningbrew.com/stories/wealthy-americans-account-half-consumer-spending