Markets Strong, Fiscal Foundations Shaky
Invested In Us | Issue 9 | September 29, 2025
As of September 26, the S&P 500 has gained more than 14% year-to-date, led by Telecommunications (+25%) and Information Technology (+20%). Healthcare has lagged, slipping “14 basis points” YTD. The Russell 2000 is up roughly 10% YTD. While equities have held strong, the yield on the 10-year Treasury has crept higher, signaling investors are monitoring underlying fiscal pressures closely.¹
The divergence between equity markets and fiscal fundamentals is stark. On one hand, deregulation and tax incentives have propped up earnings despite softer macro data. On the other, U.S. federal debt is now in the $37 trillion range, with the debt-to-GDP ratio estimated at or exceeding 124%.² ³ That ratio underscores both how aggressive capital markets are acting and how delicate the fiscal base has become.
Debt service is rising rapidly. Interest payments now approach the scale of big-ticket federal programs, narrowing the room in budgets. With nearly $10 trillion in U.S. debt held by foreign investors, questions about external demand grow sharper.⁴ Add in the specter of a potential government shutdown, and short-term political risk can amplify long-term structural vulnerabilities.
Beyond Equities: Bond Market Risks
Historically, fixed income has been the safe harbor when equities stumble. But with debt-to-GDP near record levels, deficits entrenched, and interest obligations rising, bond investors must tread carefully. We continue to favor high-quality investment-grade debt, but remain skeptical that the Federal Reserve will deliver aggressive rate cuts in the near term, given inflation stickiness and fiscal overhang.⁵
Housing: A Structural Shortage
New home sales reached 800,000 units (seasonally adjusted annual rate) in August 2025, significantly above consensus expectations of ~600,000.⁶ The median new home sale price in the same period was $413,500.⁷
To put it in perspective: in 2000, median household income was about $32,020, while the median home price stood at ~$166,994 (≈5× income). Today, with median income closer to $48,648 and median new home price at $413,500, the multiple has widened to over 8× income. Without major intervention, affordability gaps are likely to persist. Public REITs show modest gains (~5% YTD), but many carry exposure to weaker office/retail segments, which may act as drag.
Policy, Growth, and Markets
The U.S. workforce remains around 150–160 million people, with unemployment under 5%. Yet GDP growth is decelerating: estimates place 2025 near 1.7%, down from ~2.8% in 2024.⁸ If fiscal instability or political gridlock spills into credit markets—especially under a shutdown scenario—the repercussions may cascade into both equities and fixed income.
Real Assets as Anchors
In a world of policy noise and rising liabilities, real assets retain appeal. Housing shortages demand new stock. Energy infrastructure and inflation-linked cash flows help guard against eroding purchasing power. Precious metals, especially gold and silver, continue to trade near highs as investors seek durable value in a shaky landscape.
Investor Perspective
Equity returns may appear robust, but the fiscal foundation is under stress. Debt servicing now stakes claim on a large share of federal receipts, housing affordability continues to deteriorate, and policy uncertainty—compounded by the looming possibility of a shutdown—introduces latent risk. While equities can ride momentum, the warning signs in credit markets are growing louder.
This Week’s Takeaway
“Equities are celebrating, but fiscal math tells a different story. With a potential shutdown looming, resilience requires selective positioning, attention to debt dynamics, and real assets as ballast.”
Community Spotlight: Financial Literacy Month
October is National Financial Literacy Month — a moment to emphasize how foundational financial knowledge is for community resilience. Recent data underscores the need:
57% of U.S. adults cannot correctly answer basic questions on interest rates, inflation, or risk diversification.
Two-thirds of households report living paycheck-to-paycheck, with little buffer for emergencies.
Young adults (18–24) carry average student loan burdens exceeding $30,000.
Latino and Black households remain disproportionately excluded from mainstream financial services, despite being among the fastest-growing economic cohorts.
At NJK, financial literacy is not merely an initiative — it’s mission-critical. Through Piggy Bank University and community programs, we aim to arm the next generation with tools to weather uncertainty, manage risk, and build lasting prosperity.
Bottom line: knowledge is leverage. Closing the financial literacy gap may well be the most powerful form of impact investment we can make.