The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update: 

Fed Meeting Preview: Signals to Watch

This week marks another important moment for financial markets as the Federal Reserve heads into its December policy meeting. The Fed is widely expected to cut interest rates by 25 basis points, bringing total reductions to 175 basis points since rate cuts began in September of last year. While the move is already priced in, this meeting still carries weight for several reasons.

A Pivotal Meeting for Policy Direction
This is one of the Fed’s quarterly meetings, meaning investors will receive an updated Summary of Economic Projections, including new forecasts for GDP growth, inflation, unemployment, and future interest rates. These projections shape market expectations for the year ahead and offer valuable insight into how much further the Fed believes it can ease policy.

Leadership Transition on the Horizon
Fed Chair Jerome Powell’s term expires in May, leaving only a handful of meetings before leadership potentially changes. Early indicators suggest Kevin Hassett, currently part of the administration’s economic team, is the frontrunner—though nothing is final. Regardless of who takes the helm, the next Chair will assume the role at a delicate moment for the U.S. economy.

Economic Backdrop: Mixed Signals
Recent data—delayed due to the government shutdown—shows a labor market that is beginning to lose steam. The unemployment rate has risen for three consecutive months, and updated November numbers are expected next week.

Inflation remains a challenge. While headline inflation has cooled significantly from the 9% highs seen a few years ago, year-over-year inflation is still hovering around 3%, above the Fed’s 2% target. Progress has stalled in recent months, making it harder for the Fed to justify aggressive rate cuts.

Meanwhile, consumers continue to feel the cumulative effects of price increases. Overall price levels are up roughly 25% over the past five years—a rise matched only by the early 1970s. In a recent Politico poll, 46% of Americans said inflation is the worst they've experienced in their lifetime, a sentiment shared across political lines.

A “K-Shaped” Economy Persists
Despite the stock market reaching new highs, consumer sentiment remains weak—near levels last seen early in the pandemic. This divergence reflects the “K-shaped economy”:

• Some households benefit from rising markets and low mortgage rates locked in years ago.
• Others face high housing costs, limited market participation, and ongoing affordability pressures.

This divide continues to shape how Americans perceive the health of the economy, regardless of positive market performance.

Looking Ahead
All eyes will be on Wednesday’s press conference for clues about the Fed’s path forward. With inflation still sticky and the labor market softening, the central bank will need to balance supporting growth with keeping price stability on track.

We’ll provide a full breakdown following the announcement next week. As always, if you have questions about how this impacts your financial plan, please contact your EP Wealth advisor.

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Video Summary: 

Adam Phillips:

Well, another Fed Week is upon us. The Federal Reserve is expected to cut rates by 25 basis points when it comes out of its December FOMC meeting on Wednesday. So this will actually make it 175 basis points of cuts. So one in three-quarters percent cuts since they started cutting rates back in September of last year.

The question is, how much further do they go from here? This, this cut is already pretty widely expected, so it's not going to surprise too many people. But this is still a really interesting meeting. It is this quarterly meeting that we get the summary of economic projections, where the Fed produces its forecast for where they expect GDP growth, inflation, the unemployment rate, and ultimately policy rates to go over the next few years.

So this is still. Going to be a very important meeting for us. It's important for a few other reasons. This is actually one of the four remaining meetings that current Fed chair Jay Powell will be sitting in on. He's his term as Fed chair expires in May of next year. And so he only has a few more of these meetings.

This is assuming he doesn't stay on as a governor following the end of his term. But he only has a few of these meetings left to really help shape the course of monetary policy. So this is going to be important. As always, we're going to be following him really closely when he addresses reporters in the press conference that follows on Wednesday.

Another reason this is important is that the end of Fed Chair Jerome Powell's term, quickly approaching. There's a lot of talk about who will ultimately take his place. The current betting odds are showing a tilt towards Kevin Hassett. He's the current head of the National Economic Council within President Trump's administration.

So he's the odds-on favorite right now. Um, but, but we did see, I believe it was last week, that President Trump said that he'd actually wait probably until January to make a formal announcement. Um, currently, all odds are pointing towards Kevin Hassett. Some are thinking that he's still trying to get Treasury Secretary Scott Besson to take the job.

So we will see. But. Either way, no matter who is at the helm of the Fed, when J. Powell's term expires next May, it's going to be really, really important because, as always, they are really helping to shape economic policy in the us, and this comes at a really interesting time when we see that. Sure. We're seeing some labor market softness.

We've seen the unemployment rate actually rise in the last three months. Now, I will say that the data is a little bit stale thanks to the government shutdown. We're not going to get the most recent jobs data for the month of November until next week, but we know that the job market is not trending in the right direction.

Now at the others, on the other hand, we are seeing that inflation is still a problem. So the way that most of us measure inflation is we're looking at year-over-year change in prices, where we look at month-over-month change in price levels. , or annualized, rates over the last few months, but let's just, let's just look at the year-over-year price level.

Price change, it's about 3%. So that's well north of the Fed's target of 2%. It has come down quite a bit from where it was. It used to be 9%, um, a few years ago, and it's been trending in the right direction, but that progress has stalled out over the last several months, and so that is going to limit the extent to which.

The Fed will ultimately be able to deliver more rate cuts in the future. So that is something we're watching. I, I'm, I say the, the way that most of us measure inflation, because that's the way economists and a lot of investors measure inflation. Now, those don't work in economics or investments; they tend to look at it in other ways.

They're really looking at how much the basket of goods they're paying for, um, continues to go up. So they're looking at the overall change in price levels. And if we look at that, we see that price levels are up about 25% over the last five years. If you actually have to go back to the early seventies to see another time when prices rose that amount in such a short amount of time.

I believe you, if you go back to the early seventies, it actually took seven or eight years to see that amount of an increase in price levels. Therefore, it is not too surprising that last week we saw a new politico. A poll came out that showed 46% of Americans actually think that inflation or affordability, or the lack thereof, is actually the worst.

They've seen it in their lifetime. And this is a poll that surveyed Republicans and Democrats alike. So I think that's really important. It's important because next year is a midterm election year, but it's also important because we know that inflation is still a concern for households, and we know that the Fed is going to have to pay attention to this going forward.

Last thing I'll say is that we will, we, we've seen the stock market continue to reach these new highs. At the same time, we've seen consumer sentiment in the US. Move lower. It's actually been flirting with the lows from the COVID era. And what that tells us is it's this khap economy, and we always say that the economy is not the stock market and vice versa.

And, case in point, we know that there are many in the US who are certainly enjoying their stock portfolio moving higher, and they have the luxury of owning a home with a mortgage rate, let's say, sub 4%. And some have nots, right? Those who are really struggling right now. They don't have a home.

Maybe they're trying to purchase one when mortgage rates are north of 6%. They don't have as much held in stocks, and seeing their net worth grow the way that the haves are. And I think that is really helping to explain this khap economy that many of us have been talking about for so long.

So these are some of the things that we're keeping an eye on heading into this. Federal Reserve meeting and thinking about what meetings are likely to look like here in the months to come. So I'll leave it there for right now. I am sure we'll have plenty to talk about coming out of this week's FOMC meeting when we catch up next Monday.

But if you have any questions, please don't hesitate to reach out to your financial advisor.