The S&P 500 closed this week essentially flat after a volatile stretch that saw fresh records evaporate within days. Meta's $72 billion AI spending plan triggered investor doubts about return on investment, while the Fed's cautious rate-cut outlook pushed bond yields higher and pressured stocks. Beneath the surface calm, major economic indicators are sending conflicting signals about what comes next.
The Federal Reserve just cut interest rates by 0.25%, so why did mortgage rates climb higher instead of falling? The answer reveals a crucial disconnect between Fed policy and the bond market—and what it means for your borrowing costs in the months ahead.
The S&P 500 climbed 1.92% this week on better-than-expected inflation data, but beneath the surface, fundamental disconnects are growing. The Buffett Indicator now stands at 223%—exceeding Warren Buffett's "playing with fire" threshold by 23 percentage points. Meanwhile, AI infrastructure investments continue fueling tech valuations despite questions about when massive spending translates to actual profitability. This week's analysis examines current market valuation metrics, the AI investment cycle, and diverging manufacturing indicators.
JPMorgan's CEO issued a stark warning this week about credit markets: "When you see one cockroach, there are probably more." Two auto lender bankruptcies have exposed $2.3 billion in hidden loans and potential fraud—but the real concern runs deeper. After years of artificially inflated credit scores from pandemic stimulus, borrowers who never should have qualified are now defaulting as financial pressure returns. With private credit markets doubling to $1.7 trillion since 2020 and almost no oversight, even sophisticated investors like JPMorgan are getting burned. This week's economic dashboard examines the warning signs emerging across consumer confidence, housing, and rate expectations.
Markets posted their worst single-day decline since April, with the S&P 500 falling 2.71% after China announced sweeping export restrictions on rare earth minerals. Meanwhile, unprecedented federal workforce reductions may be underway during the government shutdown, creating uncertainty just as the Fed prepares for its October meeting with limited economic data.
The S&P 500 finished the week up 1.23% as investors discounted the need for a fully functioning government and looked through weakening economic data in anticipation of the Fed's perfect timing in cushioning any economic weakness. Nothing says "rational market" quite like hitting fresh records while 750,000 federal workers sit at home unpaid and the Bureau of Labor Statistics goes dark. Friday's jobs report? Delayed indefinitely. September's benchmark revision? A record 911,000 fewer jobs than initially reported. Wednesday's ADP report? Private payrolls fell 32,000—the biggest drop since March 2023. The market's response? Another leg higher, because apparently deteriorating labor data is bullish when it keeps the Fed cutting rates. And missing data is even better—we can just imagine whatever we want.