This Week in Review | US Rate Cut, Trade Negotiations, Earnings Reporting Debate

Transcript

Jessica Breiland:

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets, and most importantly, the potential impact for investors.

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Now, let's review what happened this week.

First, the Federal Reserve's September meeting.

On Wednesday, the Federal Open Market Committee, also known as the FOMC, cut its interest rate by 25 basis points to a target rate of 4% to 4.25%, marking its first rate cut since December.

While many frame this move as a way to support a weakening economy, we believe these concerns likely overstate both the impact of tariffs and the weight of Fed decisions. Monetary policy is just one of many factors shaping markets, and incremental rate adjustments like this rarely define the broader economy.

Market expectations for the cut have shifted in recent months, but settled on a 25-basis-point reduction in the days leading up to the announcement, making the decision largely expected and devoid of surprise. Additionally, headlines have highlighted dissenting votes among Fed governors, but to us, this reflects the inherent nature of FOMC decisions, which are made by a 12-member committee. Each member brings their own perspective and casts their vote. Though Fed Chair Powell remains a central public figure, he does not determine policy unilaterally. Sometimes there's more consensus among Fed officials, sometimes there's not, but either way, a final decision is made, announced, and markets move on.

For some additional context, as one of our recent MarketMinder articles stated, "Cuts aren't a game changer for stocks." Rate cuts, and hikes, rarely shift the direction of markets materially. For example, in 2008, the Fed's significant rate cuts and quantitative easing didn't end the financial crisis-driven bear market. And in 2001, rate cuts didn't stop a bear market that ran through October 2002. You can find a link to this article in the description of this video.

For long-term investors, we think it's important to monitor broader market trends and fundamentals, alongside monetary policy developments, to determine where the market may be headed.

Next, an update on trade negotiations.

The US and China continued negotiations to resolve a range of trade and investment issues, such as semiconductor chips, critical minerals and intellectual property. In August, the US granted an additional 90-day extension to finalize a trade agreement with China, setting the new deadline for November 10th.

Any deals here may ease uncertainty some, which might help businesses get back to longer term planning, even if trade barriers remain higher than they were to start the year. Political uncertainty has already eased from the year's start and its peak in April, especially with a number of trade deal frameworks announced between the US and other major trading partners, as well as President Trump's signature budget bill passing in early July. Markets are once again adapting to this administration's unusual style. To us, this illustrates that tariff and other US political developments increasingly seem to lack surprise power to move markets as much as earlier this year.

Finally, are quarterly earnings reports too frequent?

Headlines are posing the question after President Trump reignited a long-running bipartisan discussion to do away with the requirement for companies to report quarterly earnings, suggesting regulators should replace the current system of reporting every three months with a six-month reporting period.

President Trump had previously floated the idea during his first term in 2018, when he asked the Securities and Exchange Commission, also known as the SEC, to study the matter. However, no actionable recommendations followed— so it remains to be seen if this term will be any different.

The debate surrounding reporting frequency has raised questions about the impact of earnings reports on markets. While changes to reporting cadence are championed as potentially encouraging companies to go public, and they could alter how businesses operate over time, such adjustments are generally slow moving and unlikely to catch markets off guard. And to us, this seems like an overall benign idea whose potential benefits are probably overstated.

The SEC, as the ultimate decision maker, will play a critical role in determining whether this proposal gains traction. Notably, semi-annual reporting is the norm in the European Union, with no notable negative impact to stocks.

Along the way, markets will be watching and weighing the impact as regulatory changes of this nature often get a lot of attention, particularly when they involve something as closely watched as quarterly earnings. Historically, rule changes like this take years to formulate, collect public comment and decide whether to implement, suggesting markets should have plenty of time to digest and adjust should a shift to a six-month reporting period eventually occur.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets.

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