This week, the Federal Reserve cut its benchmark rate by another 0.25%, bringing the target range to 3.50%–3.75%. That marked the third consecutive meeting with a rate cut and reinforced what is now a clear pivot toward easier policy. In addition, the Fed announced plans to purchase roughly $40 billion of short-term Treasuries to add liquidity to the banking system. None of this came as a surprise. The direction of policy is well established, and rate cuts are likely to continue into next year as the Fed attempts to get ahead of slowing growth rather than react after the fact.

Economic Disconnect: Bonds & Labor

What did catch investors off guard was the bond market’s response. While short-term rates moved lower in line with Fed policy, the 10-year Treasury yield moved higher, rising from roughly 4.00% to around 4.20%. This was not a signal of renewed optimism about economic growth. Instead, it reflected hesitation from bond investors to lock money up for long periods of time. Inflation has come down, but uncertainty remains elevated. A likely reason is that government borrowing continues to add to overall debt levels, and lenders are demanding a higher return to commit capital for a decade or more. In short, investors are comfortable owning short-term bonds where flexibility is preserved, but they want to be paid more to take duration risk.

This dynamic helps explain why the economy can feel like it is moving at two speeds at once. Policy is easing, but financial conditions are not loosening evenly across the system. Short-term financing has become more accessible, while longer-term borrowing remains relatively expensive. The impact will be felt most by smaller businesses that rely more heavily on bank lending and variable-rate financing rather than deep capital markets. There always seems to be something happening that tests investor confidence, and this environment is no different.

The labor market is telling a similarly mixed story. Job openings have ticked higher, yet hiring has slowed and smaller businesses are quietly reducing headcount. The most recent ADP report showed small businesses cutting more than 100,000 jobs last month. At first glance, rising job openings alongside falling employment appears contradictory, but the reality is more nuanced. Many large companies continue to keep job postings open even if they are not actively hiring, either to preserve flexibility or to collect resumes. Complicating matters further, recent government shutdowns and delayed reporting have distorted some of the economic data. Chairman Powell acknowledged during his press conference that certain reports may contain quality issues or lag real-time conditions.

Market Shifts: AI, Rotation, and Retail

Within equity markets, this uncertainty has translated into higher volatility and a clear rotation beneath the surface. Market leadership has quietly shifted away from pure momentum-driven trades and toward companies that benefit from a widening yield curve. Banks, in particular, tend to thrive in this environment. They borrow at short-term rates and lend at longer-term rates, and when that spread widens, profitability improves. On the other hand, several high-profile AI-related stocks have pulled back in recent weeks. Oracle shares declined after the company announced a significant increase in capital spending, with expectations of roughly $50 billion in investment by fiscal 2026. In this environment, the market is less willing to pay for distant promises and more focused on execution, balance sheet strength, and cash generation.

From a portfolio perspective, periods like this tend to reward long-term investing. Daily volatility in individual stocks has become extreme, with moves of 5% or more occurring on little to no material news. Chubb, for example, fell more than $10 in a single day and then gained roughly the same amount the following day. This suggests thinner liquidity is allowing traders to move prices. Academic research, such as the classic paper “Do Retail Traders Move Markets?”, notes that even though individual orders are small, when they synchronize, they create a massive order imbalance. This imbalance can move stock prices significantly, independent of any new fundamental information.

My conclusion is that we are living in a period where retail investors can push stocks higher, abandon them, and quickly move on to the next trade. Market data indicates that many IPOs in 2025 have struggled significantly. A few were up more than 50% earlier in the year, only to be down 30% or more now. This trend is evident in names such as Bullish Global and Chime Financial. That said, leadership can change quickly. Yesterday, it was cannabis stocks’ turn. Cannabis stocks rallied sharply following reports that the Trump administration is preparing to reclassify marijuana from a Schedule I to a Schedule III controlled substance. Investors reacted positively to the prospect of improved cash flows, driving names like Tilray up 44% and Canopy Growth up 53%.

Strategy & The Cash Advantage

Looking ahead, if growth stocks become sufficiently cheap, capital will rotate out of value and back into growth. The best long-term investments tend to be reasonably priced businesses with real, durable growth. Because there are relatively few opportunities that truly meet that standard, capital often gets whipped from one area of the market to another by algorithms and short-term traders reacting to headlines. I expect upcoming economic releases to produce some extreme data points that the market will struggle to interpret. You do not need perfect data to see that the economy is slowing gradually rather than breaking. At the same time, AI is clearly disrupting parts of the job market, policy is easing, and investors are becoming more valuation-aware.

From a valuation standpoint, I do not see many true bargains today outside of Berkshire Hathaway, which continues to trade at a persistent discount. Berkshire’s cash balance started 2024 at roughly $334 billion and has since grown to about $382 billion. Berkshire represents something increasingly rare in today’s market: financial flexibility. If you tune out the noise and focus on future return potential, it is not unreasonable to envision Berkshire’s cash balance approaching $460 billion over the next few years. Even so, I expect Berkshire to remain a key contender in this market cycle. That “horse race” can change quickly if major technology companies slow their spending. If one were to consider which company is best positioned to grow cash rapidly should Nvidia’s momentum slow, Alphabet stands out. That balance of strength and risk is exactly why valuation and fundamentals matter more than headlines in the period ahead. Have a great weekend!

Sources

Federal Reserve Benchmark Rate: 3.50%–3.75%
10-Year Treasury Yield: ~4.20%
ADP Employment Report: Small business job cuts >100,000
Cannabis Sector Movement: Tilray (+44%), Canopy Growth (+53%)
Berkshire Hathaway Cash Balance: ~$382 billion
Oracle Capital Spending Outlook: ~$50 billion by fiscal 2026

Disclaimer

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