This Week in Review | Q3 Recap and Q4 Preview, US Gov't Shutdown, Eurozone Inflation

Transcript

Jessica Simpson:

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.

To stay up-to-date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, a market update.

It feels hard to believe, but we're already in Q4. Let's take this opportunity to look back at Q3 and preview what we think is most likely for stocks for the remainder of the year.

So far, it's been a good year for stock market returns. Global stocks, as represented by the MSCI World Index, were up 17.4% through the end of Q3, with the US-focused S&P 500 up 14.8%. As we enter the third quarter, global stocks had already reclaimed record highs following the challenging market correction earlier this year.

During the third quarter, global stocks performed strongly, notching multiple new record highs. Fears that September might deliver poor returns due to the "September effect" were overblown, as the month delivered solidly positive stock returns. In fact, during the months of July, August and September, global stocks advanced approximately 1.3%, 2.6% and 3.2%, respectively, returning 7.3% for the quarter. This third quarter rally continued despite tariff fears, worries over US labor data and geopolitical tensions.

Looking ahead to the fourth quarter, our bullish forecast remains intact. We believe economic, sentiment and political drivers likely support the current trend through the year end and into 2026.

Next, the US government shutdown.

A federal government shutdown began on Wednesday, October 1st, as Congress failed to pass a government funding bill. As we detailed in last week's episode, the shutdown leaves some federal workers furloughed without pay, while others deemed essential, like air traffic controllers, law enforcement personnel and others continue working but receive back pay only after the government reopens. We certainly empathize with those impacted by the shutdown and will continue monitoring developments.

But how does the uncertainty that accompanies a government shutdown impact stocks? Since 1976, there have been 21 shutdowns in the US. While US stocks can wobble in the lead up to and during shutdowns, stocks usually rise in the months after. Importantly, 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.

The shutdown will likely delay the release of some government data, such as the next jobs report from the Bureau of Labor Statistics, or BLS. Some analysts worry delays in reporting employment and inflation reports may hamper Fed policy decision-making at upcoming meetings.

But we think fears about this lack of data miss a few key points. First, economic indicators are imperfect, and no single indicator will tell you what is going on with the economy. Second, economic releases are not predictive, instead tending to confirm what forward-looking stocks have already priced in.

Finally, this isn't uncharted territory for investors. It's crucial to avoid reacting to heightened political rhetoric. Whether you support them or not, government shutdowns are a reoccurring part of US politics. But markets generally reflect broader economic trends rather than short- term political drama.

Finally, eurozone inflation.

On Wednesday, the eurozone reported September preliminary consumer inflation data. As expected, the eurozone inflation rate ticked up slightly from 2% to 2.2%. Importantly, while monthly data routinely bounces around, eurozone inflation has remained below 3% since October of 2023.

While this mild inflation uptick mirrors levels in places like the US and the UK, global inflation remains muted. In fact, China has been experiencing deflation, while Japan has seen disinflation this year. This highlights the benefits of a global investing approach, which reduces country-specific risks such as domestic inflation rates.

Though some worry things like tariffs will cause re-acceleration in global inflation, we think it's important to remember that inflation is driven by too much money chasing too few goods and services. Global money supply growth has been muted this year, suggesting global inflation should remain moderate ahead.

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 any time for our latest thoughts on markets. Thanks again for joining us and don't forget to hit like and subscribe!