September and October are historically the two weakest months of the year, and markets did enter October in a nervous state. September ended on a positive note, but there was a drop that continued into the start of October. That decline took away all of the gains from the prior month and threatened to take the markets even lower. This move would have made sense, as the economic news was weakening. But markets went on to rebound and have a very good month. That reversal is the story of last month and very possibly of this one.

Yesterday, the Fed announced that it was cutting rates one more time, in response to continued economic weakness. That decision was the treat. Markets responded accordingly, with stock markets rising. The trick, however, was in the implication—of the statement and the press conference—that this would be the last cut unless the economy deteriorated further. The implied probability of a December rate cut dropped to 22 percent, the dollar index dropped, and the rate on the 10-year Treasury declined. The Fed giveth and the Fed taketh away.

There is a lot of economic data coming out this week: consumer confidence, third-quarter economic growth, personal income and spending, the ISM Manufacturing number, the jobs report on Friday, and, of course, the Fed’s decision on interest rates (which, if you haven't heard, resulted in another quarter-point cut this afternoon). We will get a much better understanding of where we are by the end of the week, and we will talk about what all that data means.

Yesterday, the market—or at least the S&P 500 and the Nasdaq 100—hit new records. Again. But should we care? And do these most recent highs tell us anything about the future?

One of the topics I get a lot of questions about when speaking to clients is the trade war. They want to know what I think and whether whatever they’ve read in the latest headline will make a big difference. It has been a remarkably consistent question, through all the ups and downs, and the only difference is what exactly the latest headline is. My answer has also been consistent. I think the trade war is a big deal, but the latest headline doesn’t really matter. Why? Because the damage has already been done. It will just take a while to show up.

Normally, I don’t make predictions about where any individual economic stat will come out. There is enough noise in the system, and enough variance in the data collection process, that any individual report's results can vary enormously—and it still won’t mean anything.

WeWork has been one of the trending business topics in recent weeks. The collapse of its initial public offering, followed by the ouster of its CEO and founder, and now the drama over whether (and if) the company will be rescued have provided some compelling drama. It has played out more like a TV show than an actual company. Watch for the movie shortly, I expect.

In yesterday’s post, we concluded that interest rates were influenced—but not set—by the Fed. We also observed that rates were influenced—but not set—by the supply and demand of capital. We noted in both cases, however, that there was considerable variance over what those two models indicated, which suggests there is something else going on.

We closed yesterday’s post with the observation that economic theory doesn’t really have a good grip on where interest rates come from. Today, I want to explore where we think rates come from and what that might mean.

Yesterday, we started out this series with the observation that interest rates are likely transitioning to a new normal, which is different from the old normal. In other words, all of the projections that assume rates will be getting back to normal are wrong—because the definition of normal has changed.