ECONOMIC AND FINANCIAL MARKET UPDATE - SEPTEMBER 2025
- mobrock
- Sep 16
- 8 min read
Recent Market Trends
All eyes are on September’s Federal Reserve Open Market Committee (FOMC) meeting as pressures in the labor market are expected to spur an easing cycle throughout the end of the year. At the annual late-August Economic Policy Symposium in Jackson Hole, Wyoming, Fed chair Jerome Powell reiterated that “the U.S. economy has shown resilience in a context of sweeping changes in economic policy…the labor market remains near maximum employment, and inflation, though somewhat elevated, has come down a great deal from its post-pandemic highs.” Following the release of downwardly revised employment data in July, Powell indicated that the balance of economic risks may have shifted, which could necessitate a policy shift.1 Powell’s dovish tone, coupled with strength in corporate earnings and resilient consumer behavior have continued to support equity markets as major U.S. indices reached new highs throughout August and into September. The market rally has broadened in recent months, with gains widespread across sectors and market-cap segments.
Earnings Season Recap
In the second quarter of 2025, S&P 500 companies delivered much stronger results than Wall Street anticipated, with 81% beating revenue estimates and 81% beating earnings estimates. Both metrics came in well above long-term averages of 64% and 75%, respectively. Approximately 80% of the index exceeding both top and bottom-line expectations suggests that this strength in corporate earnings is not limited to the mega-cap technology stocks which tend to garner headlines but is broadly based across industries and market sectors. The overall earnings growth rate of 11.8% year-over-year marks the third consecutive quarter of double-digit earnings growth. The S&P 500 forward price/earnings ratio is 22.1, which is elevated relative to the 10-year average of 18.5, but we believe it is fundamentally supported by continued strength in corporate earnings.2 Earnings continue to grow faster than expected and are on track to exceed $310 per share by the end of 2025, which would put the S&P 500 at a price level of approximately 6,800.
Earnings expectations for the third quarter of 2025 are higher today than they were at the start of the quarter, indicating that both companies and analysts are increasingly optimistic. Typically, analysts have reduced earnings estimates during the quarter by -3.2% on average over the last ten years, however, current estimates for Q3 2025 have increased by +0.4%. Additionally, the percentage of S&P 500 companies issuing positive guidance for Q3 is 53%, well above the 10-year average of 39%. Due to the upward revisions in earnings estimates and positive earnings guidance for the third quarter, the S&P 500 is expected to report 7.5% year-over-year earnings growth for Q3, which would mark the ninth consecutive quarter of growth.3 We believe the earnings outlook remains constructive and should continue to support stock prices in the near-term as companies continue to invest for growth.
Economic Growth
Bureau of Economic Analysis GDP (Q2 2025, Second Estimate)
For the second quarter of 2025, the U.S. economy grew at a faster rate than initially thought, as real gross domestic product (GDP) increased at an annual rate of +3.3%, beating Wall Street expectations of +3.2% growth, and rebounding from the -0.5% decline in the first quarter. This primarily reflects a decline in imports – which are a subtraction in the calculation of GDP – and an increase in consumer spending. These movements were partly offset by decreases in investment and exports. This marks the strongest result since Q3 2023 (+4.4%).
Compared to the Q2 advance estimate, real GDP was upwardly revised from +3.0% to +3.3%, primarily reflecting upward revisions to investment and consumer spending that were partly offset by a downward revision to government spending and an upward revision to imports.4
Federal Reserve Bank of Atlanta GDPNow
The September 10th GDPNow model estimate for third quarter real GDP growth is +3.4%. Recent upward revisions are due to increases in the estimates for real personal consumption expenditures growth and real gross private domestic investment growth from 2.3% to 2.7% and 6.2% to 6.9%, respectively.
Institutional forecasts for the current quarter are now entirely positive with the consensus between +1.0% and +1.5%, indicating that two consecutive quarters of negative GDP growth, and thus a recession, are not anticipated.
GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. 5
Inflation Data
Bureau of Economic Analysis Personal Consumption Expenditures
Per the August 29th report, the Personal Consumption Expenditures (PCE) price index rose +0.4% in July, or +2.6% annualized, slightly softer than expectations. The core reading (which excludes volatile food and energy prices) increased +0.2%, or +2.9% annualized, in-line with expectations and marking the highest annual rate since February. Though the Fed’s focus is on the core figure, both readings remain above the Fed’s +2.0% annualized target rate.6 Hotter inflation readings against the backdrop of a weaker labor market highlights the shift in the balance of economic risks to which Powell alluded, but we believe the U.S. consumer remains resilient and will continue to support economic growth as employment has remained stable.
Bureau of Labor Statistics Producer Price Index
Though the PCE is the Fed’s preferred inflation gauge, the Producer Price Index (PPI) also warrants attention, as it is considered an important leading indicator of inflationary pressures. Price increases on inputs for producers are typically passed on to the consumer. In August, the PPI was much lighter than expected, posting the first decline in four months as both the headline and core readings declined -0.1% against an estimated rise of +0.3% month-over-month (chart 1 below). On an annual basis, core PPI was +2.8% against expectations of +3.5% (chart 2 below). Importantly, prices for the services sector – which currently accounts for around half of U.S. GDP – declined by -0.2%, driving wholesale inflation lower and further supporting the argument for expansionary monetary policy. Goods inflation did increase on the supplier side, but only by +0.1%.7 Though certain products and industries, such as coffee and tobacco, have been directly impacted by tariff policy, they have not yet resulted in a significant and widespread spike in inflation that analysts widely anticipated.
Labor Data
Bureau of Labor Statistics Employment Situation (August)
Total nonfarm payroll employment changed little in August, increasing by +22k against expectations of +77k. The unemployment rate ticked up +0.1% to 4.3%, the highest rate since October of 2021. Job gains in health care were partially offset by losses in federal government and in mining, quarrying, and oil and gas extraction. The number of long-term unemployed (those jobless for 27 weeks or more) changed little at 1.9mm, accounting for 25.7% of all unemployed people. The unemployment rates for workers aged 25 years or more remained relatively unchanged below 4.0% while it increased to 9.2% for workers aged 20 to 24, indicating that it is becoming more challenging for recent college graduates to find jobs.8
It is important to note that though the labor market appears to be slowing as both hiring and firing have moderated, the unemployment rate at 4.3% remains well under the 5.0% threshold which signifies full employment. For historical context, the unemployment rate from 1980 to the present is displayed below.
U.S. Department of Labor Initial Jobless Claims
For the week ending September 6th, initial jobless claims increased by 27,000 from the previous week to 263,000 against estimates of 231,000. So far this year, the weekly initial claims number has ranged from 204,000 to 250,000 which is considered a healthy range. The four-week moving average was 240,500; an increase from 9,750 from the prior week, marking the highest level since June 2025 and the sharpest one-week increase since December of 2020.8 While a brief spike above the 250,000 level is not uncommon (see 3-year chart below), a continued elevated level of weekly jobless claims would signal a broader decline in labor market conditions. As with the unemployment rate, it is helpful to contextualize this recent figure by comparing the recent uptick in weekly claims to pandemic levels, which were over three times greater (see 5-year chart below).9 We continue to closely monitor these trends and do not believe the current data is indicative of significant labor market deterioration.
Our Thoughts
As we enter the final quarter of 2025, our outlook on the U.S. economy and financial markets remains constructive. Despite an extended period of uncertainty stemming from tumultuous and punitive trade policy, remarkably strong corporate earnings continue to fundamentally support stock prices, a resilient American consumer continues to support economic growth, and widely anticipated inflationary fears have still not yet been realized. As we expected, U.S. financial markets experienced heightened volatility in recent quarters as the economy and labor markets absorbed and reacted to sweeping policy changes, however, we believe the U.S. economy remains on sound footing.
Investors have moved past tariff and fiscal policy uncertainty as strong corporate profits, softening interest rates, moderating inflation, and a steady employment environment produce a supportive backdrop for economic growth. We expect the Fed to be accommodative into early 2026 as the labor market provides support for expansionary policy. Historically, as the Fed begins a new rate cutting cycle, technology companies (hardware, software, semiconductors) have been outperformers. We continue to focus client technology sector equity investments on companies with strong financial metrics and historical consistency. We will continue to stay focused (overweighted) on the information technology sector as well as the industrials sector due to the long-term trends of domestic infrastructure spending and investment, which we believe are multi-year trends.
With employment softening somewhat – though still historically sound at a 4.3% unemployment rate – companies are realizing productivity gains via the implementation of new technologies, which have bolstered profit margins. At 13.9%, the forward profit margin of the S&P 500 is at a record high and well above the 5-year average of 11.7%, indicating that tariff-associated costs and labor shortages are not materially affecting margins due to offsetting productivity growth. More recently, market volatility has been restrained, however, we continue to anticipate heightened volatility as overall equity valuations reside toward the higher end of historical averages. We believe the economy remains in a ‘Goldilocks’ state. As the market continues to reach all-time highs and client equity portfolios move toward the upper end of their investment policy statement guidelines, we will continue to be opportunistic in rebalancing risk while being mindful of tax-efficiency and diversification.
As always, we believe patience, discipline, and maintaining a long-term perspective are of paramount importance in achieving superior long-term absolute positive and relative rates of return. We highly value your relationship and thank you for your confidence. We wish you a pleasant upcoming holiday season and look forward to speaking with you soon.
Sources
Disclosures
Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd. and Parkview Partners Capital Management are separate entities.
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