September 19, 2025

The investment landscape has shifted this week. The Federal Reserve delivered its first interest rate cut of 2025, reducing rates by a quarter point to 4.0%-4.25%. While markets had largely anticipated this move, the decision has revealed fascinating insights about the central bank's internal dynamics, providing important signals about the path ahead for your investment strategies. 

As we analyzed the week's developments and their implications for portfolios, three key themes emerged: 

• The Fed's measured approach to policy normalization.
• Encouraging signs on inflation pressures.
• Mixed signals from the housing market. 

Each offers valuable insights to position your investments in the months ahead.

The Fed's Balanced Approach Creates Investment Opportunities

The Federal Reserve's decision demonstrated a mix of unity and division within the central bank. While the committee delivered the widely expected quarter-point cut, newly-appointed Governor Stephen Miran advocated for a more aggressive half-point reduction. 

What's encouraging for investors is that the majority of Fed officials remained aligned on their approach. This signals they're carefully considering the overall economic risks, rather than reacting to any single data point. This measured response gives us confidence that the Fed is managing the transition thoughtfully, supporting both economic growth and price stability.

For portfolios and investment strategies, this environment creates compelling opportunities. Growth-oriented companies can benefit from lower borrowing costs, which can reduce their financing expenses and make their future cash flows more valuable. At the same time, the Fed's cautious approach suggests they won't rush into aggressive easing that might reignite inflation concerns, supporting the case for maintaining defensive positions that provide stability during periods of policy adjustment.

Inflation Pressures Remain Manageable Despite Trade Tensions

One of the week's most encouraging developments came from import price data, which rose just 0.3% in August, despite ongoing tariff pressures. This carries important implications for both the Federal Reserve policy and investment strategies.

This data provides evidence that foreign companies are absorbing much of the tariff impact, rather than passing it directly to consumers. This suggests inflation pressures from trade policies may be more manageable than previously expected, giving the Federal Reserve additional flexibility in their policy approach.

For investors, this development supports several key investment themes:

• Companies with strong supplier relationships and pricing power are well-positioned to navigate changing trade conditions, while maintaining their profit margins. 
• Consumer spending power may remain more resilient than anticipated, benefiting businesses that depend on discretionary household expenditures.

This reinforces our strategy of owning businesses that can adapt to changing trade conditions, while maintaining their competitive advantages, rather than simply hoping for favourable policy outcomes.

Housing Market Signals Caution & Opportunity

The Caution

The housing market provided mixed signals this week. Construction fell to 8.5% in August and building permits have dropped to their lowest levels since 2020. While these numbers might sound concerning at first glance, they actually offer valuable insights for forward-looking investors.

Housing markets often lead broader economic cycles by several months, making current construction data a useful indicator of economic conditions. The recent softness reflects ongoing affordability challenges that have made home purchases difficult for many, particularly first-time buyers.

The Opportunity

The silver lining is that mortgage rates have started to decline following the Federal Reserve's recent actions. This could provide meaningful relief for both potential home buyers and residential builders in the coming months.

For investment portfolios, this creates a nuanced opportunity. Well-positioned homebuilders with strong balance sheets and attractive land positions could benefit significantly from the improving affordability conditions. At the same time, the data suggests exercising caution toward companies heavily dependent on discretionary home-related spending until we see clearer signs of market stabilization.

Portfolio Performance Driven by Quality & Scale

This week's market action has reinforced several key themes in our investment strategies, with our holdings in large-cap, high-quality companies delivering particularly strong results.

Tesla’s Stock Performance

Tesla led individual stock performance with a near 13.0% gain. This demonstrates why we continue to hold this innovative company, despite its premium valuation. The surge demonstrates that investors recognize the opportunity of Tesla's unique exposure to both electric vehicle adoption and artificial intelligence development — two of the most powerful long-term trends reshaping the global economy.

What makes Tesla particularly compelling is its ability to benefit from multiple growth drivers. Beyond expanding into electric vehicle (EV) market share, the company continues advancing autonomous driving technology and robotics applications. While Tesla's stock can experience significant short-term volatility, we maintain our position because of management's track record of executing ambitious plans and the company's position at the intersection of several transformative technologies.

Consumer Discretionary Sector Performance 

The Consumer Discretionary sector was our strongest performer this week, with holdings like Tesla and Amazon contributing meaningfully to returns. This sector’s strength reflects continued consumer resilience and the market's growing recognition that well-positioned companies can thrive, even in challenging economic environments.

Size Strategy Performance

Perhaps most notably, our Size strategy delivered exceptional results, with large-cap holdings across multiple sectors contributing strong gains. During periods of uncertainty, investors naturally gravitate toward companies with the resources and scale to navigate complex challenges, and this week proved that.

Large companies possess several advantages that become more valuable during periods of economic or policy uncertainty. They have the financial strength to continue investing through economic downturns, the global reach to capture emerging growth opportunities, and the management depth necessary to adapt their strategies as conditions change.

While some market observers express concern about concentration in mega-cap stocks, we view their recent leadership as earned through superior execution and the development of sustainable competitive advantages. These businesses generate substantial cash flows, maintain strong balance sheets, and possess the scale to compete effectively in an increasingly complex global economy.

Looking Ahead: 3 Key Events to Watch

As we look at the week ahead, there are three developments that deserve particular attention from investors.

1. Fed Chair Powell Speech

On Tuesday, September 23, Federal Reserve Chair Powell will deliver his first public comments since the rate decision. During the Fed’s September 17 meeting, newly-appointed Governor Stephen Miran advocated for a larger half-point cut, a notable outlier amidst support for a quarter-point cut. Powell's remarks at the Greater Providence Chamber of Commerce will be closely watched for clues about the central bank's thinking on future policy moves.

Markets will be particularly interested in how Powell will address the balance between supporting employment and managing inflation risks, especially given recent mixed economic signals. Powell’s speeches often provide more nuanced perspectives than formal Fed statements. Tuesday’s speech could offer insight into whether this week's quarter-point cut represents the beginning of a more aggressive easing cycle or if it’s simply a measured response to current economic conditions.

2. Weekly Jobless Claims

Thursday, September 25’s Weekly Jobless Claims data will offer our most timely reading of employment market health. Recent trends have shown some softening in labour conditions, which was one of the catalysts for the Federal Reserve to begin cutting interest rates. We'll be monitoring whether this softening continues or begins to stabilize at current levels.

Employment data carries particular importance because strong job markets support both consumer spending and corporate profits. Labour market health is a key indicator for both bond and stock market performance. While unemployment remains relatively low by historical standards, significant changes in weekly claims can signal broader economic shifts before they appear in the comprehensive monthly employment reports.

3. Core PCE Price Index MoM

Friday, September 26’s Core Personal Consumption Expenditures Price (PCE) Index Report will deliver the Federal Reserve's preferred measure of inflation for August. This provides crucial insights into whether price pressures are continuing to moderate. The PCE Price Index, which excludes food and energy, is the metric Fed officials watch most closely when making interest rate decisions.

This report carries particular significance given the Fed's recent rate cut and their ongoing focus on bringing inflation down to their 2% target. Recent Core PCE readings have been running around 2.9% annually, which is still above the Fed's goal but shows gradual improvement from earlier peaks. Any unexpected acceleration could complicate the Fed's easing plans, while continued moderation would support the case for additional rate cuts ahead.

Maintaining Focus on Long-Term Value Creation

This week's market developments have reinforced some of our enduring principles that guide our investment strategies:

• Quality companies with strong competitive positions, robust cash generation, and experienced management teams continue to demonstrate their value during periods of uncertainty. 
• The Federal Reserve's measured approach to policy adjustment suggests we're likely to see a gradual — rather than dramatic — shift in monetary conditions. This creates opportunities for patient financial investors to focus on fundamental business strength, instead of short-term policy speculation.

This Week’s Investment Strategy Takeaways

As always, our primary focus is helping you achieve your long-term financial objectives through disciplined investment processes and thoughtful portfolio management. While weekly market movements capture attention and provide useful information about investor sentiment, sustainable wealth creation comes from owning excellent businesses at reasonable prices and allowing them time to compound their returns.

The current environment, with its mix of policy adjustment, technological transformation, and evolving global trade relationships, continues to create opportunities for investors who are willing to look beyond short-term noise and focus on the fundamental drivers of business success.

This analysis is based on publicly-available information and represents our current views, which may change based on market conditions and new information. Past performance does not guarantee future results. Please consult your Financial Advisor to determine how these insights might apply to your specific investment situation.