A Letter from the Desk of Reality
A Letter from the Desk of Reality
To: Equity Portfolio Managers, Macro Strategists, and Anyone Still Pretending September Made Sense
From: Markets Desk
Re: Q3 Wrap-Up, or How We Learned to Stop Worrying and Love the Contradictions
Date: September 30, 2025
Colleagues,
As we close the books on Q3, I feel compelled to commit certain observations to writing before the muscle memory of this quarter's absurdities fades into quarterly letters and PowerPoint presentations that smooth over what actually happened.
The S&P 500 closed today at 6,669 points, up 0.12% on the session and 3.95% for the month. Year-over-year gains sit at 16.82%. These are the numbers we'll report. Clean. Tidy. Bullish.
What we won't mention in the executive summary: we achieved these returns while the U.S. government careened toward—and likely into—a funding shutdown at midnight tonight, dockworkers walked off the job at every major East and Gulf Coast port this morning in the first strike since 1977, and Jerome Powell spent the past week carefully telegraphing that the Fed has no intention of riding to anyone's rescue.
Let me walk you through the landscape as it exists right now, not as we'll remember it six months from now when hindsight has filed away the rough edges.
The Strike Nobody Priced In
Twenty-five thousand longshoremen hit the picket lines early this morning. Every container port from Boston to Houston is now functionally frozen. JPMorgan estimates this costs the economy $3.8 to $4.5 billion per day. The ports handle more than half of U.S. container imports. Holiday inventory was supposed to flow through these chokepoints. Now it sits offshore or gets rerouted through already-congested West Coast terminals.
And yet. Equities barely flinched. The market opened, absorbed the news, and went about its business as if 25,000 workers shutting down critical infrastructure was a scheduling inconvenience rather than a supply chain crisis.
Why? Because markets have decided—correctly or not—that this ends quickly. Contract negotiations will resume. Someone blinks. Operations restart within days, not weeks. Perhaps. Or perhaps we're seeing the early stages of an inflation shock nobody's modeling yet, with containerized goods sitting in limbo while retailers scramble and consumers pay whatever price clears the market.
Powell's Non-Message
The Fed cut rates by 25 basis points at its September meeting. The dot plot points to two more cuts before year-end. Powell's recent speeches frame this as "risk management," putting policy in a "more neutral" position. Translation: we're done being aggressive, stop expecting heroics.
Powell made this especially clear in his September 23 speech. He acknowledged the labor market is softening—that was the justification for cutting in the first place—but he also made it plain the Fed isn't panicking. There's no crisis requiring emergency action. The policy stance is "still modestly restrictive," and the Fed is "well positioned" to respond if conditions deteriorate.
Read between the lines. The Fed is done holding your hand. They cut rates because the labor market data gave them permission, not because they think the economy is breaking. If the port strike triggers inflation pressures or the government shutdown creates data blackouts, Powell has signaled he'll lean on projections rather than chase real-time noise. The Fed is flying on instruments, not visual reference.
The Shutdown Variable
Federal funding expires tonight. Congress hasn't passed a budget. Furloughs begin. Economic data releases stop. The Bureau of Labor Statistics, Census Bureau, and every other statistical agency that feeds the information ecosystem goes dark.
For a market that claims to be data-dependent, this should matter. Except markets stopped being data-dependent somewhere around mid-2024 when forward guidance and narrative momentum replaced actual economic prints as the primary signal mechanism.
Here's what the shutdown actually does: it removes the ability to confirm or deny the soft landing thesis. No jobs report. No CPI. No retail sales. Just projections, vibes, and whatever private data vendors can cobble together. The Fed will make its next move based on its own forecasts, and markets will trade on sentiment rather than substance.
Maybe this is bullish. Without data to contradict the narrative, equities can keep grinding higher on the assumption that everything is fine until proven otherwise. Or maybe it's the setup for a violent repricing when the data finally does come back and reality asserts itself.
What We're Actually Trading
So what are we buying at 6,669 on the S&P? We're buying the idea that:
- The port strike resolves quickly with minimal economic impact
- The government shutdown is temporary noise
- Powell's two remaining cuts happen regardless of near-term turbulence
- The labor market is soft enough to justify easing but not so soft that it signals recession
- Corporate earnings continue to justify current multiples despite deteriorating consumer fundamentals
- Geopolitical risks remain contained
- China's stimulus efforts stay rhetorical rather than transformative
Each of these assumptions could be correct. They could all be correct simultaneously. But the fact that we're pricing them in with such equanimity—that we're hitting new highs while critical infrastructure goes offline and the government shuts down—suggests we're trading on faith rather than fundamentals.
The October Question
We enter October with momentum intact but foundations uncertain. Historically, October is when the market finds out whether September's optimism was justified. This October, we'll do it without government economic data, with half the country's ports offline, and with a Fed that's made it clear they're observers rather than interventors.
Gold hit all-time highs overnight for a reason. Not because anyone expects catastrophe, but because the range of possible outcomes has widened dramatically. When uncertainty spikes, safe havens rally even if risk assets keep climbing. Both can be true simultaneously. Both are true right now.
The question isn't whether we hit 6,669. We did. The question is whether that number represents fair value for the conditions we're actually operating under, or whether it's the last print before the market has to reconcile narrative with reality.
I don't have the answer. Neither do you. Neither does anyone sending you allocation recommendations this week. What I do know is that we're closing Q3 with more unresolved variables than any quarter I can remember, and the market's response has been to shrug and keep bidding.
Maybe that's rational. Maybe we've correctly assessed that all of these risks are transient noise and the soft landing proceeds as planned.
Or maybe we're about to find out what happens when multiple low-probability events compound in ways models didn't anticipate.
Either way, we'll know soon enough.
Regards,
The Desk
P.S. — If you're wondering why I'm writing memos instead of making calls, it's because I genuinely don't know which way this breaks. When certainty returns, you'll get recommendations. Until then, you get observations. Do with them what you will.