Knowledge Center
Market Currents – 9/5/25
- Markets Push Higher as the Economic Picture Shifts. Financial markets continued their advance in August, even as the gains came on lighter trading volumes typical of late summer. This resilience is notable, as it comes against a backdrop of more cautious economic signals. The straightforward optimism of early summer has given way to a more complex balancing act, with investors now weighing solid corporate earnings against emerging concerns of moderating economic growth and persistent inflation. For now, investors appear willing to look past this uncertainty, placing their confidence in the strong, high-quality companies to navigate the months ahead. As we enter the fall, all eyes now turn to policymakers for clearer signals on the path ahead.
- Labor Market Loses Momentum. The much-anticipated August jobs report, released this morning, confirmed what many had been expecting: the red-hot labor market is beginning to cool. The pace of hiring slowed notably from previous months, reflecting a more cautious stance from businesses. Wage growth, a key area of focus, also cooled more than anticipated. For a market that has been accustomed to relentless strength in employment, this downshift represents a significant change in the narrative.
- Fed’s Focus Pivots Toward a Dovish Stance. The latest jobs report was significant enough to cause a fundamental shift in the outlook for Federal Reserve policy. For over a year, the Fed’s primary focus has been a “hawkish” fight against inflation by keeping interest rates at what they consider a “restrictive” level – meaning, high enough to deliberately slow the economy. However, with job creation slowing significantly over the past three months, the balance of risks has clearly changed. The focus is now shifting toward the other side of the Fed’s mandate: supporting employment. As a result, the market now overwhelmingly expects the Fed to deliver an interest rate cut at its upcoming September meeting. The debate is no longer about if an easing cycle will begin, but rather how deep it will ultimately go.
- Corporate Earnings Remain the Market’s Bedrock. With the second quarter earnings season now behind us, the results confirmed a theme of corporate resilience. The majority of companies successfully protected their profit margins and delivered earnings that exceeded expectations, providing a key pillar of support for the market over the summer. However, the conversation among investors is now shifting from what companies earned in the past to what they are likely to earn in the future. The same economic moderation that has altered the Fed’s course presents a new challenge for corporate revenues and profitability. Whether that earnings strength holds firm in a slowing economy will likely determine the market’s direction through the end of the year.
- Market Outlook: Positioned for What Comes Next. There is a time-tested saying on Wall Street: “Don’t fight the Fed.” With policymakers now shifting to a supportive stance, this principle has become the market’s primary tailwind. However, this accommodative policy backdrop does not eliminate the near-term risks posed by a slowing economy and the coming test for corporate earnings. Following the market’s strong recovery in the summer months, our investment discipline is guiding us to take profits in positions that have performed well. This is the same process that prompted us to be buyers during the last pullback; a strategy that works in both directions. Our goal is to navigate the near-term economic uncertainty with a slightly more defensive posture, while building up “dry powder” needed to seize the next wave of opportunities.