Government Shutdown & Markets: Growth Persists Amid Shutdown & Tariff Noise

Economic Impact of Government Shutdown - Previous government shutdowns have had negligible effects on the broader economy and financial markets, with the federal government being the smallest contributor to GDP [1] - The household and business sectors remain in good shape overall, which mitigates the impact of government shutdowns [1] Recessionary Risks and Employment Data - Recent weak employment data has sparked debates about market valuations and potential interest rate movements by the U.S. Federal Reserve, but broader economic data indicates a healthy economy [2] - The Atlanta Fed's GDPNow model projects a 3.8% real growth for the third quarter, significantly above the prior business cycle's average of 2.5% [3] Corporate Earnings and Stock Prices - S&P Global forecasts record earnings for the S&P 500 Index in the coming quarters, supporting stock prices despite periodic volatility [4] Tariff Uncertainty and Economic Resilience - While tariff uncertainty is causing turbulence in some industries, the U.S. economy remains relatively insulated due to its services-driven nature [5] Labor Market Dynamics - Slowing jobs growth is viewed as a normalization post-pandemic, with demand for new workers cooling but not collapsing, and layoffs remaining at normal levels [6] - Net immigration is projected to fall to less than 250,000 per year, which should help maintain low unemployment rates [6] Federal Reserve Interest Rate Outlook - The Fed is expected to implement a series of 0.25% reductions to short-term interest rates, potentially bringing the Fed Funds Rate closer to the neutral estimate of 3% [7] Yield Curve and Economic Growth Expectations - Long-term yields remain anchored, with the 10-year Treasury yield at approximately 4.15%, indicating expectations of further short-term interest rate reductions [8] Investment Implications - The company remains overweight U.S. equities, particularly in high-quality businesses with strong earnings and low leverage, favoring sectors such as information technology, financials, and industrials [9] - On the alternatives side, equity option overlay strategies are being used to enhance yield and manage downside risk [10] Fixed Income Strategy - The company is cautious about short-duration assets due to reinvestment risk and has shifted focus to intermediate-term asset-backed securities [11] - There is an underweight position in U.S. Treasuries, with a strategy to diversify across credit qualities and durations [12] Market Volatility and Cash Indicator - The Cash Indicator has shown low levels, suggesting market complacency and susceptibility to shocks, but the positive economic backdrop presents opportunities to increase allocations to high-quality businesses [13]