Wake Me Up When September Ends
By Crest Capital Advisors on September 29, 2025
Dow: (0.15%) to 46,247.29
S&P 500: (0.31%) to 6,643.70
Nasdaq: (0.65%) to 22,484.07
Russell 2000: (0.59%) to 2,434.32
Bitcoin: 109,200
10 Year Yield: 4.18%
Outperformers: Energy 4.67%, Utilities 2.82%
Underperformers: Communication Services (2.74%), Materials (2.02%), Consumer Discretionary (1.22%)
Major US equity indices finished slightly lower this week, but came off their worst levels thanks to a modest Friday rally. Equities took a breather this week after their recent strength (the Dow, S&P, and Nasdaq set fresh all-time highs as recently as Monday).
The big economic event of the week was the August Core PCE on Friday (the Fed’s preferred measure of inflation), which increased 0.2% month over month, in-line with consensus (and July’s 0.2%), with an annualized core PCE at 2.9%, also in-line with consensus and the July reading. Overall, this was a mostly “in-line” report, which is unlikely to alter the broader Fed or economic narrative much, as markets already had a solid read on August inflation from CPI, PPI, and trade price data. The tariff passthrough argument is a hard one to make this month. PCE core goods deflated in August at a (1.3%) annual rate, and that’s just where you ought to see it if it were there.
Returning to markets, we’d characterize the final weeks of September as having a heavy feel for US equities, with trading volumes thinning and price action lacking conviction (early gains giving way to selling pressure throughout the trading days). After a strong summer rally, markets appear to be in a holding pattern, digesting mixed macro signals and waiting for the next catalysts.
The so-called “September Effect” has added to the cautious tone, as investors grapple with inflation concerns, rising yields, and lingering tariff uncertainty, prompting defensive positioning and profit-taking in high-growth names. With October set to bring a flood of earnings reports, Fed commentary, and key economic data, many traders seem content to sit on their hands for now, anticipating that the real volatility and opportunity will arrive with the new month’s newsflow. In the meantime, please enjoy our meme of the week and wake us up when September ends.
Profits Over Politics
Despite the intense rhetoric and market jitters surrounding the 2025 tariff escalations earlier this year, capital has NOT fled the United States in any sustained or systemic way.
In fact, US assets have retained their safe-haven appeal, with demand for Treasuries and dollar-denominated instruments remaining strong, even as some foreign holders rebalanced their positions. Foreign direct investment flows have been mixed. Some firms are diversifying into Asia and Europe, but others are increasing US investment to circumvent tariffs, particularly in sectors like semiconductors and EV batteries. Executives at major investor conferences echoed this resilience, noting that while risk premiums have risen and some deals were delayed, the depth and liquidity of US markets continue to attract global capital. In short, the narrative of wholesale capital flight is overstated! Tariff fears have caused turbulence, but the US remains a magnet for global investment thanks to its scale, liquidity, and institutional strength.
The chart below from Ned Davis Research shows the percentage of US equities owned by foreign institutions is holding steady at record high levels.
Circular Logic?
The circular capex story that has propelled the largest companies higher over the past 12 months continues to unfold. The three headlines below illustrate just how interconnected these firms have become:
Nvidia is investing in OpenAI, which recently signed a cloud deal with Oracle that, in turn, leads Oracle to purchase Nvidia chips for its data centers. The dollar amounts involved are staggering, sometimes even exceeding revenues. We are not suggesting that this momentum is about to end in the near term, but at a minimum, it’s something we are watching closely. It’s also worth noting that many of these deals are not firm contracts, but rather memorandums of understanding (MOUs), which carry less commitment.
Lean and Mean
Despite the increasing rhetoric around high valuations, it’s hard to get too bearish with S&P profit margins making fresh cycle highs. That is the situation we find ourselves in today, with the next 12 months estimated operating margins for the S&P 500 pushing higher to 18.24% (see chart below), a new record high. The key takeaway here is that corporations are doing more with less, and it’s flowing through to the bottom line. It’s difficult to envision a scenario of severe deterioration in the labor market when margins and profits are expanding.
Valuation Is Not a Good Timing Tool
A lot of talk lately about how valuations are ‘high’. And objectively, they are indeed high. But here’s what the data says….there is virtually no correlation between PE multiples and what the S&P 500 does the next year (R-squared of -0.01). As you can see from the chart below, the results over the next 12 months for all levels of PE ratios are all over the board.
Better Late Than Never
With just 3 months left in the year, the OECD made the bold call (wink) of acknowledging what the market has known for months… the global growth outlook isn’t so bad. The Nikkei has known it (new high), Shanghai has known it too (new high), Chinese 10-year yields have had a hunch as well (turning up), and Brazilian, Mexican, and Canadian stocks too (new highs as well, among others). Collectively, the 6-month rate of change on the MSCI World Index (ex. U.S.) is in the 90th percentile – a rare condition from which future returns generally outperform the historical average. Our growing trepidation is on the sentiment front – there are very few rules that hold over time, but the OECD and the IMF being late to the game seems to be one of them. With that in mind, we took some comfort in the concern reiterated for next year… “significant risks to the economic outlook remain,” the OECD opined. When they’re all in, we’ll get more worried.
The OECD just upgraded its global growth outlook after a downgrade in June… they’re finally waking up to what the market has known for months. Given their track record, we’d file this more in the contra basket.
Economic Funnies
In the spirit (no pun intended) of the record-high profit margins for the S&P 500 Index.
Crazy Stats of the Week
- The emerging secular growth story, due to the ongoing AI/Data Center investment cycle boom highlights the growing need for increased power generation. The International Energy Association (IEA) projects that Data Centers alone will consume 117% more electricity than they did in 2022 by next year!
- In terms of contribution to GDP, we’ve never seen a surge in tech & software investment of the scale we are seeing today. For some perspective, here’s the contribution to real GDP growth from businesses investing in software and technology (Information Processing Equipment) since 1960.
Quote of the Week
“If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”
– Peter Lynch
Calendar of Events to Watch for the Week of September 29th
The third quarter of 2025 will officially draw to a close next week, and investors will begin to look ahead to Q3 earnings season (just a few short weeks from now) as well as the stretch run into year-end, a historically favorable period (after we get through October) for stocks. The week will start off slow with just a few relevant economic reports, but will heat up towards week end as we get the Non Farm Payrolls report for September on Friday morning. With the Fed having recently cut due to weakening labor trends, this report will go a long way towards ratifying future cuts, or if the jobs report is hotter than expected, it could move the narrative back towards a “one and done” situation.
Monday 9/29 – August Pending Home Sales are expected to post a 0.65% monthly increase, up from a -0.40% decrease last month. We’ll also have several Fed speakers on deck with Governors Waller and Williams having scheduled speaking engagements. These may be interesting coming on the back of Friday’s PCE report.
Tuesday 9/30 – The August JOLTS Job Openings is expected to come in at 7.1m, roughly in-line with last month’s 7.181m print. The Chicago PMI is expected to post a 43.5 level, up from 41.5.
Wednesday 10/1 – The ISM Manufacturing for September is expected to remain in contraction at 49.3, but up from last month’s pace of 48.7. August construction spending is forecast to be 0.1%, up from last month’s -0.1% contraction. The ADP Private Payrolls report is expected to show 35k net new private sector jobs, down from 54k last month.
Thursday 10/2 – The Weekly claims data will continue to get scrutiny, particularly since this data-set has moderated once again after spiking a few weeks back. Durable Goods for August is expected to post a 0.2% monthly increase. August Factory Orders are expected to increase by 0.2%.
Friday 10/3 – The main event of the week is the September Non-Farm Payrolls report. Economists are forecasting a fairly anemic 45k net new jobs, up from last month’s 22k pace. The unemployment rate is expected to remain unchanged at 4.3% with Hourly Earnings forecast for a 0.3% monthly increase. Later in the day, we’ll also get the ISM Services PMI, which is expected to come in at 51.7, down from 52.0 last month.
Source: MarketWatch / FactSet (September 2025)
