This Week in Review | US Gov’t Funding, US Housing Market, UN General Assembly

Transcript

Austin Standiford:

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, an update on US government funding negotiations.

This week, congressional negotiations over a short-term funding bill to keep the federal government operating appeared to stall. President Trump and Democratic congressional leadership originally scheduled a meeting for Thursday, which may have offered an opportunity to break the impasse. But the president canceled the meeting, saying he felt the meeting wouldn't be productive.

It's important for investors to remember that a last-minute deal is always possible, but if no agreement is reached by midnight on September 30th, a partial government shutdown could occur. This would leave some federal workers furloughed without pay, while others deemed essential, like air traffic controllers, law enforcement personnel and others would likely continue working but receive backpay only after the government reopens.

Uncertainty over the status of negotiations and the specter of a potential shutdown can raise questions among investors about the potential impact on stocks. Historically, government shutdowns can contribute to short-term market volatility, but stocks often rebound quickly and strongly. And no shutdown has ever been a bear market's proximate cause. That's because long-term economic growth and corporate earnings typically outweigh the effects of temporary political disruptions.

For investors, it's crucial to avoid reacting to daily headlines. Funding deadlines are a recurring part of politics, but markets generally reflect broader economic trends rather than short- term political drama.

Next, US housing market data.

The US housing market was in the news this week, with several key updates, including data on building permits, along with new and existing home sales. The data was mixed. Building permits fell in August, and remained at their lowest level since May of 2020. On the other hand, August new home sales jumped 20%, reaching a three-year high. Since the fall of 2022, the industry has grappled with elevated mortgage rates that reached levels not seen since the early 2000s, though mortgage rates have eased recently from highs.

On the construction side, some investors are pointing to falling lumber prices as a potential economic warning sign. Lumber futures have dropped 24% since reaching a three-year high in early August, with major sawmill operators scaling back production due to trade uncertainties and weakening demand.

What does all of this mean for the US economy? Residential investments, which include new construction and remodeling, now accounts for just under 4% of US GDP. That's down from 5% two decades ago. So, while a slowdown in the housing market likely generates headlines, its impact on the broader economy remains limited. This was evident in 2022 and 2023, when declines in residential investment did not trigger a US recession.

Ultimately, housing plays a smaller role in the economy compared to the dominant US services sectors, which make up over three quarters of GDP. While the housing market headlines may be eye catching and housing costs are a significant portion of many household budgets, the sector's influence on economic growth and the current bull market is often overstated.

Finally, the UN General Assembly.

This week, world leaders, including President Trump, convened in New York for the 80th session of the UN General Assembly. President Trump's Tuesday address to the General Assembly generated headlines, while the ongoing conflicts in Gaza and Ukraine, along with climate change and migration, were also notable topics covered this week.

While geopolitical events like the General Assembly often dominate headlines, investors should differentiate between political developments and true market-moving events. Major policy changes can influence market trends, but short-term diplomatic tensions and dramatic news often have limited long-term impacts. History demonstrates that markets are resilient, adapting to political uncertainty. As the outcomes of this week's meetings remain uncertain, we encourage investors to stay levelheaded and avoid reactionary decisions based on fleeting headlines.

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, Three 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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