Markets Shake Off Shutdown and Embrace Falling Interest Rates
As we enter October, a government shutdown has naturally raised concerns. But, as I’ve noted in previous newsletters, history shows that shutdowns typically have minimal impact on the economy or financial markets, so there’s no real need to stress about it. Focus, instead, on the fact that the markets are still strong and the Federal Reserve is now actively working to shore up weak spots in the economy, all of which bodes well for investors in this final quarter of 2025.
As you might recall, the last government shutdown in 2018-2019 lasted 34 days, and most people barely noticed. This one started October 1, but as usual, essential services remain in place (although some agencies — such as Social Security — may operate with reduced staff). What’s more, shutdowns usually serve as motivation for polarized politicians to negotiate and reach agreements before any real economic or market impacts can be felt.
The Markets
As for the markets, September was another strong month for Wall Street. The Nasdaq led with a 5.3% increase, while the S&P 500 rose by just over 3% for the month, and the Dow Jones Industrial Average gained nearly 2% and hit a new record high. September capped off a strong quarter for all three indexes and put the S&P up by 14% for the year.1
Much of the market’s strength now stems from the fact that the Fed has begun lowering short-term interest rates and is expected to continue. Falling short-term rates typically drive down long-term rates, creating a tailwind for investors. The Fed cut rates by a quarter percent in September and is expected to reduce them once or twice more this year, mainly in response to a weakening job market and rising unemployment rate, which now stands at 4.3%.2 The other main force driving market growth is the strong resurgence of the tech sector — in particular, companies focused on artificial intelligence.
Naturally, a falling interest rate environment also helps bond investors. In September, thanks mainly to the Fed’s cut to short-term rates, the interest rate on the 10-year government bond edged down from 4.26% at the start of the month to 4.15% by the end. It has since dropped a bit further.3
Your Portfolios
As you know, our Sound Income Strategies portfolios were already enjoying a strong year relative to our goals even before this interest rate tailwind emerged. As we enter the fourth quarter, those of you in our most conservative portfolios of bonds and bond-like instruments should see your total return up by about 5.5% on average for the year, depending on your individual holdings. That puts us on track for 7% or more by the end of the year if current trends continue, meaning we would exceed our 6% target.
Of course, that’s not 14% like the S&P, but it is a solid, steady, and reliable return, which is the whole point of an income-first, growth-second strategy, as you know. You also know that if trends do change dramatically for some reason and the markets suddenly reverse course, you’ll still be able to count on your interest and dividend income and know that your principal is, ultimately, better protected.
With all that said, if you ever do want to discuss getting a bit more aggressive with your strategy, please reach out to us at any time. Always remember that our goal is to keep your portfolio aligned with your goals and your situation. If your circumstances or risk tolerance ever change, we encourage you to let us know. Whether that means getting more aggressive or dialing back your risk a bit, we are always here to help!
Naturally, that also means if you have any questions or concerns on any topic, please feel free to give the office a call or shoot us an email at any time. Beyond that, have a great October and a safe and happy Halloween!
Sources:
1 https://www.cnbc.com/2025/09/29/stock-market-today-live-updates.html
3 https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Wright Financial Group and Sound Income Strategies, LLC are not associated entities. Wright Financial Group is a franchisee of Retirement Income Source®. Retirement Income Source® and Sound Income Strategies LLC are associated entities.