It’s hard to believe the first week of September is coming to a close and fall is officially upon us. We hope summer 2025 treated you and your family well.
In our September 2024 note, I discussed seasonal weakness in equity markets, a 75-year historical data trend that reveals the month of September as being the worst performing month for capital markets. This proved to be the case last year, but we believe this month may be different.
Context is key when it comes to seasonal data, and right now, equity markets are trending higher and exhibiting strong momentum coming into this month. Technical analysis shows the S&P 500 index is currently trading above its 200-day moving average and in the past when these three trends have been in place, the average price return for the month of September jumps to a positive 1.3% return.
In addition, on September 17th we fully expect the Federal Reserve to begin adding fuel to the fire by cutting short-term interest rates by .25% (25 basis points) and we wouldn’t rule out a more aggressive .50% rate cut, as long as inflation data (reflected by the CPI report) next week stays unelevated.
We’re not out of the woods just yet regarding inflation though. The latest inflation data for July matched expectations, but the slight increase in the year-over-year core personal consumption expenditure (PCE) deflator – the Fed’s preferred inflation metric, rose from 2.8% in June to 2.9% in July, reminding us that there is still work to be done on inflation. Tariffs won’t make that work any easier as price increases begin to flow through to consumers – their legality notwithstanding.
The Federal Reserve and markets agree that recession risks remain low, and S&P 500 companies are in excellent health. Second quarter gross domestic product (GDP) was revised higher to 3.3% annualized, a solid jumping off point for third and fourth quarters. Fiscal policy stimulus coming in 2026 will likely offset tariff hits to the economy, creating a favorable backdrop. Remember, markets are forward-looking, and this setup will help stocks hold recent gains and mitigate potential market declines in case volatility picks up.
At the end of the day, the real meat on the bone that supports current stock prices is corporate earnings -and they continue to impress. The “Magnificent Seven” (Apple, Amazon, Google, Microsoft, Meta, Nvidia, Tesla) delivered nearly 30% earnings growth in second quarter 2025 and increased their capital investment plans. To put this growth into perspective, the other 493 companies in the S&P 500 Index grew second quarter earnings by an average of 4% -a huge disparity in revenue growth between the Mag 7 and the rest of the market and in many ways justifying their premium valuations.
Capital investment in artificial intelligence (AI) could approach $500 billion next year, and potentially hit $3 to $4 trillion by 2030, according to NVIDIA CEO Jensen Huang. This investment bolsters the earnings growth outlook for the tech sector and more broadly, could bring sizable productivity gains across the economy as a whole -many of which are just becoming apparent.
The downside risks to equities (at the moment) appear to be manageable, but we cannot take our eye off the ball. In particular, we acknowledge many of our tech holdings are richly valued and the other 493 stocks within the S&P 500 Index are trading on average at an elevated trailing P/E of 22 – with the most recent historical average being 18-20.
Tactically, from a portfolio management lens, we’re in the process of rebalancing accounts, keeping a keen eye on maintaining equity and bond diversification and continue to lengthen maturity dates on our fixed income holdings as they mature.
Lastly, as we have mentioned before, the best time to raise cash is on market highs. If you foresee yourself needing a sizable withdrawal from your portfolio before year end, please reach out to us!
As always, we wish you and your family a great Friday evening, and a wonderful weekend!
Please reach out to us with any questions or comments you may have regarding your specific situation.
Jaran C. Day, Chief Investment Officer
Griffin Dalrymple, CFP®, Chief Strategy Officer
Past performance is not indicative of future performance.
The views expressed represent the opinion of Opinicus and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Opinicus’s view as of the time of these statements. Market performance cited is not indicative of portfolio performance experienced by portfolios Opinicus manages. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.