Weekly Newsletter: September 22, 2025
The Fed was playing one of the more interesting parlor games, Never Have I Ever. Never have I ever raised rates while the economy was projected to grow at 3% in a quarter, AND with inflation running at 3% AND consumer spending above 4%, AND employment at the low end of its historical range. What was evident from the various Fed governors’ projections of economic growth, the direction of interest rates, and inflation was that they were far from being in unison. They increased their estimates on economic growth for all of 2025, while maintaining inflation and employment at current levels. If that were truly the case, then why bother cutting rates? Further, why pencil in two additional cuts before year-end? Many economists saw this cut as a “preemptive” cut to help what is perceived as a weak job market. Based on the weekly jobless claims and the current unemployment rate, it could be argued that the job market is “weakening” but remains far from weak. It could be under that guise that the Fed felt it necessary to cut rates. It will take time to see if the Fed is embarrassed by how their answer to “Never Have I Ever” turns out.
All eyes were on the Fed this week, and the volatility around the announcement and comments during the press conference stuck to the historical script. There was nothing in the economic data from the prior weeks that was going to stop the Fed from making the 25bp cut to rates. The retail sales figures early in the week were surprisingly strong. For all the handwringing over the health of the consumer due to the “weak” jobs data, little was standing between the consumer and the cash register last month. The numbers are in stark contrast to various surveys of how consumers feel about the economy, which remain weak. Now that the Fed meeting is over, the next few weeks will be loaded with various Fed speakers outlining their economic views and why they think rates should continue to be cut. Much of the discussion will center on the jobs data and “weak” job market. Investors will have to wait until October 3rd to get another reading on jobs. As has been the case with economic data of late and given the once again datadependent Fed, every major economic report is the “most important” one of the year. Outside of the raft of Fed speakers, import/export data will hit on Thursday and may provide some additional color on the impact from tariffs. The dollar, which has been weak during the first half of the year, has stabilized somewhat since then.
The bond market did bounce around like stocks did as Chair Powell’s press conference went along. However, stepping back rates were very stable at the 1-year and shorter maturities, while ticking a bit higher at the long end of the maturity schedule. The Fed controls short-term rates, while perceptions about inflation drive the direction of long-term yields. The rise in rates to end the week may be a signal that investors are not thrilled with the focus on the jobs market at the expense of inflation data, which remains sticky around 3%. Commodity prices have been fairly volatile yet remain essentially unchanged from four months ago. Yield spreads between “junk” (or low-grade) bonds are also near multi-year lows, indicating investors are very aggressive about taking risks and eschewing the safety of government bonds.
September is turning out to be another good month as stocks continue to march higher. Over the past four months, the market low for each of the months occurred on the first trading day of that month. Meaning any market decline that may have happened was very minimal and never went below where stocks started out the month. This is an interesting tidbit that does not drive investment decisions but is more a show of how steadily higher stocks have gone since June. Over the past two years, there have only been seven months that saw a market decline, with three of those seven down months culminating in the “Liberation Day” announcement. Technology stocks continue to lead the market higher, but one has to wonder how much longer. One reason investors have flocked to the group is that they are very “capital light”, meaning they don’t need to make investments in plant and equipment. Their biggest investment went down the elevator every night. Today, with the huge spend on AI, they have become a very capital-intensive sector, building data centers and absorbing huge costs to run them. The results of that huge spend will not likely show up in earnings for the next couple of years. Meanwhile, the costs will be hitting the income statement as well as the balance sheet well ahead of the revenue stream. This could make the group a much riskier investment than historically has been the norm.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.