Data Junkie

Last month, we discussed data and considered the need to dig deeper into it to gain a greater understanding of what it is telling us versus just what a surface overview provides. We found that by digging deeper into the data, we could glean some insights into the economy and markets that are not readily talked about.  This month, likewise, we are discussing data, but from the perspective of our need for it, or said differently, our reliance on it. We, the investment and economic community (including investors), have become data junkies!  Like those unfortunates that the term “junkie” is typically used for (those that are hooked on drugs), we have become hooked on data. So, what happens when that data – our drug - is not available?  We scramble to fit whatever data we have to our narrative, make prognostications about what we think is happening from lesser sources of data, and we put caveats on everything we report, such as “until data is available,” or “this is our best guess,” or “we are projecting based on past data.”  The funny thing is, we say those things even when we do have data readily available!  Right now, however, we are restricted on what data is available due to the government shutdown.  Official data, such as inflation and unemployment, is not available from the government, so we are left with estimates made by private economists and firms. The good news is that many times, they are more accurate with their results and projections than the sometimes-dated government data. Let us start to get our economic fix by looking at the market data from last month and then delve further into what economic data we do have.

Financial Markets

While some economic data is not officially available, market data is, and that helps feed our desire for data. October has the reputation of being a scary month for the markets, but this year was nothing of the sort.  Monthly data for the Dow (up 2.59%), the S&P 500 (up 2.34%), the EAFE (up 1.10%), the NASDAQ (up 4.72%), and the Bloomberg US Aggregate Bond index (up 0.62%) were all nicely in positive territory and have extended valuations.  On the other hand, monthly data for the S&P 400 (down 0.47%), the S&P 600 (down 0.88%), and the Equal Weighted S&P 500 index (down 0.95%) were not all that bad.  Although it would have been nice to see the smaller-cap indices rise and the market broaden, it was nothing we have not seen before. The markets continue to be top heavy, and that is data that could become scary should valuations continue their relentless push higher. As we have said in the past, valuations are stretched (especially in the biggest of the big names) and it will take strong earnings growth to allow them to maintain those levels.  The broader markets are not as stretched, and so any downturn, should it (just a question of when?) occur, may be more muted than otherwise would be the case. The biggest, most stretched names, may pullback further, but they also tend to bounce back more quickly (think 2022). For more market and economic data (such as is available), see the end of this commentary.

The Economy

Economic data is harder to come by, as much of it is dependent upon the government. With the government shutdown, they are not releasing information that economists and the investment community rely on to get our data fix, but also to make investment decisions by. While some data is being released, it may be partial data, may be dated, or may not be as “accurate” as it typically is or is not.  Having said that, the economy does seem to be doing fine as we head towards the holidays, with consumer spending continuing to be strong, inflation remaining reasonable given expectations, unemployment holding in there in the face of some new layoffs, and the effects of the shutdown on government workers.  An encouraging note is that loan delinquency rates have held steady, or declined, in recent months, indicating that consumers are in reasonable financial health.  Given the need for strong consumer buying during the holidays, that is good news. As we head into the new year, the effects of tax cuts for the individual and corporations should provide a boost as well.  Another potential boost, however slight, is that the U.S. budget deficit was down in FY 2025 versus FY 2024 by about $41 billion.  Not a lot, but you must start somewhere.  Increased tariff revenue played a part, along with other items such as student loan portfolio reforms. Should progress continue to be made, it will be a boost to the economy in the long run, but we cannot take our eyes off the ball, and we need to do much more in the budget fight. Fortunately, there are private concerns that do provide some economic data, so we do have some points to refer to, but they are not necessarily the “good stuff” that we need.

Let us look at some of the data points that we do have.

GDP (Gross Domestic Product) – Like many other data points, the government has not released new GDP data since September.  At that point, we noted that we contracted by 0.6% in the first quarter but bounced back by growing at a rate of 3.8% in the second quarter (third estimate). Heading into the third quarter, estimates were that GDP would grow, but at a slower rate (closer to 2.5%) due to slightly rising inflation, the tariffs, a deteriorating jobs picture, and more. Those weaker expectations faded as the quarter played out and estimates moved higher. While the data may be delayed, the most recent estimate for third quarter growth per GDPNow is 4.0% (as of November 3rd), much higher than the forecasts. Full-year estimates, however, continue to hover around 2.0%, but if the third quarter number is close to reality and the fourth quarter exceeds expectations as well, perhaps the full-year number will head closer to 3.0%.  Data, we need data, please!

Inflation – Because the government needs inflation data at this time of the year to determine the cost-of-living adjustment (COLA) to social security for 2026, the government was able to produce the CPI report for October reflecting September’s data.  So, our need for inflation data has been met for another month!  Inflation ticked higher in September by 0.3% to an annualized rate of 3.0%, both of which were lower than forecast.  Still a long way from the Fed’s 2.0% target, the number was expected to rise this fall, and any rate lower than expected is good news. Truflation, one of the non-governmental providers of inflation data, is reporting a rate of 2.26% as of October 4^th, 2025.  The largest cause of the increase in September was the price of gas, which rose 4.1% in September, although it is expected to decline in the coming months and is already somewhat evident at the pump.  Like gasoline, shelter costs are expected to decline, and their impact on the rate of inflation should show up in the coming months (assuming, of course, that we get data). So, the little governmental data that we have received is relatively good news.  Let us hope that continues when we next get the data.

Unemployment – Just like last month, current data is not available from the government.  Neither is data from other sources at this point.  However, recently, several companies have announced layoffs, but not because of a slowing economy necessarily, but partially because (both current and anticipated) of AI. There have also been reports of college graduates not being able to find jobs as easily as they have over the past few years, according to data from the Federal Reserve Bank of New York. Again, this may be due to AI, but it is also likely because employers are both not firing and not hiring as much right now. For now, the unemployment rate (August data) stands at 4.3% nationally, 3.1% (preliminary) for Wisconsin, and 2.7% (preliminary) for Madison. The Sahm Rule Recession Indicator stands at 0.13, indicating that a recession is not imminent (again, as of August), at least from an unemployment standpoint. Our reliance on current data is quite evident here.

The Fed Watch

The Fed claims they are data dependent and that details matter. They are perhaps the biggest data junkies out there – at least that is the perception they give off.  In fact, everything they do is data driven and is meant to reach certain data points, such as reaching their inflation target of 2.0%.  While they typically do not talk of an actual number for full employment, the second part of their dual mandate is to reach and maintain full employment.  That level seems to be somewhere around 4.0%, give or take, and based on the little data we have available, we remain near that target. The Fed did cut rates by twenty-five basis points in September and then recently did so again in October.  Unlike the September meeting, the Fed backed off (at least Chairman Powell did) from the idea of another rate cut in December.  The reason – lack of data! Clearly the Fed has become data dependent!  There has been some dissent on the Federal Reserve Board about what to do, with some advocating for larger rate cuts and some for holding the line.  Forecasting what the Fed may or may not do is always a dubious proposition, but now with data less readily available it is even more of a shot in the dark.  Whether the Fed cuts again in December or not, look for three to four more cuts by the end of 2026.  Of course, however, whatever happens will all be based on…yup, you guessed it…data!

Outlook/Summary

Investors and investment managers, economists, and other financial professionals are data junkies.  We are hooked on data and make decisions based on things like inflation or unemployment reports, earnings reports, price-to-earnings (P/E) ratios, and a million other data points.  Many can be quite helpful in determining what the near future might look like, but most end up just as guard rails.  Relying on data requires picking and utilizing the correct data points, and that is where anyone can go astray. Choosing certain data points can lead investors to try and time the markets only to end up losing most of the time, and the times that it works are usually nothing more than sheer luck. That is why we do what we do in managing portfolios.  Market expectations can run rampant, exceed reality, and cause investors to do things that might otherwise not be rational. Instead, having a diversified portfolio that can take advantage of market rallies but being protective of market pullbacks has been a proven winner in the long run, while perhaps not outperforming in any given rapidly rising market.  Right now, unfortunately, all the data is not available and so investors and economists are stuck estimating where things stand.  Do not get caught being a data junkie investor, but be a rational, long-term investor, letting the data set guard rails, and then make appropriate asset allocation decisions that will allow you to succeed over time.

Should you like to discuss your portfolio or learn if our strategy can work for you, please call the Wealth Management division of Lake Ridge Bank at (608) 826-3570. We look forward to speaking with you.

Market/Economic Data

As of October 31st, 2025…. Unemployment data is through August for national (no new data due to shutdown), August for Madison and Wisconsin (both preliminary); inflation data is through September:

Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.

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