The Dividend Cafe - Wednesday - October 29, 2025

Episode Date: October 29, 2025

Market Reactions to Fed Announcement & The Rise of 401(k) Plans In this episode of Dividend Cafe, Brian Szytel discusses the market's reaction to the Federal Reserve's recent interest rate cut and the end of the quantitative tightening program. Despite an initial market gain, comments from Fed Chair Powell about a December rate cut not being guaranteed led to a sell-off. Szytel provides insights into the likelihood of future rate cuts and the current state of economic data amid a government shutdown. Additionally, Sitel addresses a viewer question about the relationship between the rise of 401(k) plans and the popularity of index funds, explaining that while they are related, the primary reason for the shift from pension plans to 401(k) plans is corporate governance. The episode closes with an overview of the day's market volatility and encourages listeners to continue submitting questions. 00:00 Introduction and Market Overview 00:11 Fed's Interest Rate Cut and Market Reaction 02:04 Economic Data and Fed's Decision Details 02:52 The Rise of 401(k) Plans and Index Funds 05:07 Conclusion and Upcoming Updates Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome to Dividend Cafe this Wednesday, October the 29th, Brian Sightel, back with you here midweek on a down day overall in markets, but just slightly. We actually had a gain for most of the day as high as 400 points, and we gave that back on the Fed announcement for the day, which, while largely expected, the Fed cut interest rates by 25 basis points. They also ended their quantitative tightening program, as I mentioned, with very high likelihood yesterday. And so that was all expected. And the reason markets ended up selling off was simply a comment that Powell had made in the press conference about a December rate cut, not being a. foregone conclusion. The fact that traders were trying to game that one way or the other is frankly silly to me, and also the fact that it moved Fed futures from a 90% chance of a rate

cut in December down to a 57% chance also seems a bit silly to me as well. I think the likelihood of them cutting in December is still very high. And I also think given the dearth of government data that is now coming out with the government being shut down, I'm not really sure what else someone is supposed to say as far as not being a foregone conclusion when there isn't a lot of data to really base it upon. But yeah, we gave back a gain of 400 on the day. We closed down 74 points on the Dow Jones. We were flat on the S&P, NASDAQ was up 55 basis points. And you did end up getting a rising yields on that comment of not foregone conclusion, which the 10 year was up nine basis points. We closed at 4.07. But that brings us now to the Fed

funds rate, which is 3.75 to 4%, so it's coming back towards terminal. What I've basically said all along was I figured that something above inflation would be about right. And if you think inflation is going to average something like a high 2% range, then something in the range of mid-3s or so on Fed funds might make sense for a terminal rate to try to be neither restrictive or accommodative, in other words, on monetary policy. There was a couple of of pieces of economic data out. Again, there's still a lot of things that are delayed from the shutdown, but we did have some pending home sales that were just slightly off. There was actually some green shoots inside of those numbers, but for the month of September, it was a flat number

versus a 0.1% gain that was expected on pending home sales. Inside of the Fed decision, back on the main comment of the day, there was only two members that voted another way. Miron, who we've spoken about before. This was the Trump appointee that wanted a 50 basis point rate cut last meeting, also wanted a 50 basis point rate cut this meeting as well. You had Schmidt in there that wanted to hold rate steady. Other than that, it was unanimous. You've got a Ask TBG question in there today about the advent of index funds being a big reason that 401K is or more popular than pension funds now, or are these things unrelated? In other words, index funds related to popularity of 401Ks. those two things go hand in hand. Short answers now, the rise in contribution plans, defined

contribution plans over defined benefit plans has to do with a lot of reasons. Corporate governance on these businesses that didn't want these long-term liabilities on their balance sheets. If you think about the large automakers, for example, or airlines that really got underwater by having over-promised and under-delivered on internal rate of returns inside of these plans, they're big liabilities. From a corporate standpoint, they prefer to get out of that liability and the way to do that is to offer a plan where employees themselves can contribute their own paycheck into it. And then the government sponsored that by making a tax deductible contribution available and then also raising the contribution amount that people can put into those plans over time.

So those are really the reasons as to why the popularity of a 401K plan, the fact that roughly 45% of all 401K assets are, in fact, in index fund is a different phenomenon, although related, There's now $9 trillion in 401K plan. So, you know, is that the advent of indexes? No, but it certainly supported the rise in popularity. No question about that. But you've got companies like Vanguard and, you know, very large, successful businesses that have created a business model

around popularizing this investment type. There's a lot of good data about the benefit of index investing over a long period of time as well. The problem is that when you're accumulating and saving, as a young person, it is a fine approach. And then as you get a little bit older and need a little more intentional result from the assets that you've saved, like an income stream to live on, it becomes a little less relevant. So I suppose as a demographic changes, so as you get an aging population, you might see that sort of shift. And we have. There's a big rise in active management just this year alone. But those are some of the

realities between a 401k account and an index, so not related directly, some indirect correlations. there. There was a lot of volatility on the day around the Fed announcement. Ultimately, we closed flat on the day. We'll see what tomorrow brings us. But we'll be back with you on Dividend Cafe, which will be Thursday. In the meantime, I encourage the questions. They're always great. Reach out. And I hope you have a wonderful evening. We'll talk to you soon. Thank you. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member Finra and SIPC, with High Tower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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