This Week in Review | Fed Rate Cut, China Trade Balance, Reshoring Manufacturing

Transcript

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, the Fed's December rate cut. On Wednesday, the Fed cut its policy rate by a quarter point, bringing the target range to 3.5% to 3.75%. As we shared in a recent MarketMinder article, many media outlets referred to it as a hawkish cut, partly because the Fed's dot plot revealed the median participant anticipates just one more rate cut in 2026, a cautious outlook suggesting the economy may not need much more support. Fed Chair Jerome Powell echoed this sentiment, noting cooling labor market conditions and moderately elevated inflation, while also highlighting strengths like solid consumer spending and growth in business investment. Even with delayed jobs data, Powell pointed out that layoffs and unemployment remain low, reinforcing confidence in the economy's resilience. The Fed's projections align with this view, revising their median GDP growth forecast for 2026, up from 1.8% to 2.3%. This stronger outlook doesn't call for aggressive rate cuts, and Powell emphasized the importance of monitoring data before making further moves, reinforcing the Fed's cautious and data driven approach. For long-term investors, this is a good reminder not to overrate the Fed's influence. Stocks in the economy are driven by many factors, and monetary policy is just one variable. And there are certainly pockets of strength continuing to propel this bull market. For example, loan growth and business lending remain strong, and globally, central banks cutting rates have created tailwinds for markets. While the Fed's recent announcement may make headlines, we think it's unlikely to shift the trajectory of this bull market. Next, a look at China's trade surplus this week. China's trade surplus topped $1 trillion for the first time, reigniting some debate over trade imbalances. While some view the imbalance as problematic, to us, the issue is less critical than many believe. Instead, we think it reflects industrial overcapacity and an overreliance on demand outside of China, meaning domestic consumers aren't absorbing enough of what the country produces, leaving it heavily dependent on exports. For some, the concern is that dollars spent on imported goods from China could have been spent in the United States. But it's important to remember that the dollars Americans spend on goods produced outside the US don't just vanish. They're often reinvested back into the US in the form of stocks, bonds and direct investment in facilities or factories. So, policies like tariffs, which can aim to reduce imports, also risk reducing the foreign capital that can help fund growth and innovation in the US. Ultimately, history shows that as nations develop, they often transition from trade surpluses to deficits as their economies shift from manufacturing to services. This evolution typically brings higher living standards and a better quality of life. We think the constant focus on trade balances often misses this bigger picture, and can potentially lead to policies that hinder economic progress rather than help it. Finally, a look at manufacturing and reshoring efforts. As the year winds down, let's take a moment to reflect on manufacturing, specifically the push to bring more of it back to the US, a concept often called reshoring. In 2025, there have been some encouraging signs. Manufacturing purchasing managers indices have indicated expansion for much of the year, and investments in equipment have contributed to GDP growth. However, it's important to note that the backbone of US economic growth is still consumer spending on goods and services, not manufacturing. And while reshoring efforts may be viewed as a potential economic boost, they face notable challenges that can make progress slow and complex. As we shared in a recent MarketMinder article, one of reshoring biggest hurdles can be red tape. In some countries, building a factory is really straightforward. But in the US, companies often face a complex web of city, state and federal regulations. Beyond regulations, local opposition can also slow progress, with concerns ranging from environmental impacts to simply not wanting a large factory nearby. When you factor in these challenges, reshoring can become a slow and costly process, while reshoring may eventually yield results. To us, these efforts are unlikely to be a near-term economic driver. And 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."