Historically speaking, equity markets loathe uncertainty – especially after an extended bullish price move. As Wall Street’s largest institutional investors start to return from their summer vacations, five important questions loom.
Fed Independence in Question
Most investors see the US Federal Reserve’s independence as a cornerstone of its monetary policy decisions. Through long and staggered service terms and complete operational independence, the body is supposed to be shielded from political forces. While both sides of the aisle claim the other side is seeking to control the Fed, both parties are guilty. For instance, in 2024, Democrat Senator Elizabeth Warren wrote a letter to Fed Chair Powell saying that the “Fed must cut by 75bps on September 18th.” Just one year later, Warren said, “What you are doing (by pushing for lower rates) will take an axe to Fed Independence.” Meanwhile, the Republicans are just as guilty. President Trump and his economic team have been pushing Fed Chair Powell to cut rates for months.
How will Investors React to the Cook Firing Attempt?
As if the typical political double-speak was not enough confusion for markets, the picture got even murkier when President Trump fired Fed Governor Lisa Cook. President Trump fired Cook based on allegations of mortgage fraud from Federal Housing Finance Agency head Bill Pulte. The Federal Reserve Act allows a president to fire a Fed Governor for cause, but this is the first time a president has done so. Cook has vowed to fight the firing. Regardless of the outcome, the overhang over the US Central Bank will likely weigh on markets until there is a resolution.
Will the Courts Overturn Trump Tariffs?
In April, President Trump’s ‘Liberation Day’ tariffs led to the first bear market since 2022. Though the tariffs were far higher than investors anticipated, Trump merely used a “Shock and bore” approach to negotiate better trade deals with major trading partners such as the EU. After a few weeks of sliding markets, investors caught onto Trump’s strategy and stocks rallied strongly in one of the fastest rebounds in history, eventually printing all-time highs. However, as soon as the market seemed to have adjusted to the Trump tariffs, President Trump suffered a huge setback with many of his administration’s tariffs being ruled illegal by a federal appeals court late last week. The Trump administration will likely appeal the ruling, and the tariff dispute should reach the Supreme Court. Regardless of which way the verdict goes, the fact that such a significant market force is in limbo will likely cause skittishness among investors.
Is Stagflation a Concern?
The economy is in an interesting position currently. GDP growth is above 3% but this morning’s jobs number was the worst in a long time. For the first time since April 2021, the US now has more unemployed people than job openings. With the Fed expected to cut interest rates in September, the jobs market should get a boost. However, the question on investors’ minds is, “Is stagflation around the corner?” For now, GDP remains strong, but a weak jobs market could be the first signal of a potential slowdown. Meanwhile, inflation is essentially in check, though many investors worry that lower rates could ignite higher inflation.
Will September Seasonality Kick in?
Historically, September has been a weak month for stocks, especially in a post-election year like 2025. Stocks tend to set local highs in September that precede October rebounds. Will this time be different?
Bottom Line
This fall promises a confluence of factors that could inject significant volatility into equity markets. Unprecedented political pressure on the Fed and tariff court battles are at the forefront of the uncertainty.
Image: Bigstock
Stock Market View: A Fall Full of Questions
Historically speaking, equity markets loathe uncertainty – especially after an extended bullish price move. As Wall Street’s largest institutional investors start to return from their summer vacations, five important questions loom.
Fed Independence in Question
Most investors see the US Federal Reserve’s independence as a cornerstone of its monetary policy decisions. Through long and staggered service terms and complete operational independence, the body is supposed to be shielded from political forces. While both sides of the aisle claim the other side is seeking to control the Fed, both parties are guilty. For instance, in 2024, Democrat Senator Elizabeth Warren wrote a letter to Fed Chair Powell saying that the “Fed must cut by 75bps on September 18th.” Just one year later, Warren said, “What you are doing (by pushing for lower rates) will take an axe to Fed Independence.” Meanwhile, the Republicans are just as guilty. President Trump and his economic team have been pushing Fed Chair Powell to cut rates for months.
How will Investors React to the Cook Firing Attempt?
As if the typical political double-speak was not enough confusion for markets, the picture got even murkier when President Trump fired Fed Governor Lisa Cook. President Trump fired Cook based on allegations of mortgage fraud from Federal Housing Finance Agency head Bill Pulte. The Federal Reserve Act allows a president to fire a Fed Governor for cause, but this is the first time a president has done so. Cook has vowed to fight the firing. Regardless of the outcome, the overhang over the US Central Bank will likely weigh on markets until there is a resolution.
Will the Courts Overturn Trump Tariffs?
In April, President Trump’s ‘Liberation Day’ tariffs led to the first bear market since 2022. Though the tariffs were far higher than investors anticipated, Trump merely used a “Shock and bore” approach to negotiate better trade deals with major trading partners such as the EU. After a few weeks of sliding markets, investors caught onto Trump’s strategy and stocks rallied strongly in one of the fastest rebounds in history, eventually printing all-time highs. However, as soon as the market seemed to have adjusted to the Trump tariffs, President Trump suffered a huge setback with many of his administration’s tariffs being ruled illegal by a federal appeals court late last week. The Trump administration will likely appeal the ruling, and the tariff dispute should reach the Supreme Court. Regardless of which way the verdict goes, the fact that such a significant market force is in limbo will likely cause skittishness among investors.
Is Stagflation a Concern?
The economy is in an interesting position currently. GDP growth is above 3% but this morning’s jobs number was the worst in a long time. For the first time since April 2021, the US now has more unemployed people than job openings. With the Fed expected to cut interest rates in September, the jobs market should get a boost. However, the question on investors’ minds is, “Is stagflation around the corner?” For now, GDP remains strong, but a weak jobs market could be the first signal of a potential slowdown. Meanwhile, inflation is essentially in check, though many investors worry that lower rates could ignite higher inflation.
Will September Seasonality Kick in?
Historically, September has been a weak month for stocks, especially in a post-election year like 2025. Stocks tend to set local highs in September that precede October rebounds. Will this time be different?
Bottom Line
This fall promises a confluence of factors that could inject significant volatility into equity markets. Unprecedented political pressure on the Fed and tariff court battles are at the forefront of the uncertainty.