September 15, 2025

“It is better to be roughly right than precisely wrong.”

John Maynard Keynes

Good Afternoon, and I am happy to be back, I write with a heavy heart following last week’s profound events, which transcended market reactions. I had the privilege of meeting Charlie Kirk on several occasions and shared a mutual friend. Though not an insider, I can attest to his remarkable character—boundless optimism, infectious energy, and a commitment to principled politics. As one observer noted, “He did politics right.” Critics who never engaged with him missed his genuine interest in others’ views, his belief in respectful debate, and his empathy as a means to counter divisive discourse. Charlie died defending the First Amendment. His journey into a “force of nature” revealed his growing conviction that robust debate requires a return to moral principles, particularly the Judeo-Christian values that shaped our nation’s history. This stance made him a target of leftist and woke ideologies, which many see as contributing to our social and political challenges. Thank you for indulging this personal reflection in a market-focused newsletter.

So what happened last week? Last week marked another positive period as the third quarter nears its close. The S&P 500 rose 1.33%, the Dow Jones Industrial Average gained 0.82%, and the Nasdaq led with a 1.54% increase. Internationally, the FTSE 100 advanced 0.82%, and the MSCI-EAFE returned 1.3%. The 2-year Treasury yield stood at 3.562%, while the 10-year yield reached 4.068%. U.S. stocks posted their best week in five, fueled by optimism about Federal Reserve rate cuts. The S&P 500 neared record highs, the Nasdaq hit new peaks, and the Dow approached its own. Tech stocks, led by a $27 surge in Tesla, drove the rally, while rising oil prices on supply concerns boosted energy shares. Microsoft gained attention after EU approval to unbundle Teams from Office and a new OpenAI deal. Meanwhile, Boeing’s ongoing strike expanded as workers rejected another contract, threatening defense production. Beyond megacaps, investors shifted toward energy mid-caps as demand fears eased, luxury retailers on resilient high-end spending, and Chinese tech firms amid stabilizing growth. Strength in gold and oil futures supported miners and energy services, broadening the rally across sectors.

Inflation, Inflation, Inflation! Our opinion is, mixed but manageable. Concerns loomed that last week’s inflation reports could trigger a correction in risk assets, challenging expectations of Fed rate cuts. However, the data told a different story. August wholesale prices fell 0.1% (versus an expected 0.3% rise), with the year-over-year change at 2.6% (below the anticipated 3.3%). July’s reading was revised down from 0.9% to 0.7%. Consumer prices rose 0.35% monthly, near the high end of estimates and the strongest since January, with three- and six-month trends ticking higher. Still, the numbers didn’t derail the Fed’s anticipated path for next week’s meeting. The Consumer Price Index (CPI) showed inflation accelerating to 2.9% annually in August, up from 2.7% in July, driven by rising costs for gas, groceries, hotel rooms, airfares, clothing, and used cars. Core prices (excluding food and energy) held steady at 3.1%, above the Fed’s 2% target. Despite this, the Fed is expected to cut its key rate to about 4.1% from 4.3% at its upcoming meeting, balancing rising inflation with a softening labor market.

What about the labor market? Labor market data painted a concerning picture. August payroll growth fell well below expectations, signaling a slowdown in job creation. Initial unemployment claims jumped 27,000 to 263,000 last week, the highest this year. The Bureau of Labor Statistics’ annual revision revealed payroll growth for the 12 months ending March 2025 was overstated by 911,000 jobs—roughly 76,000 per month—the largest revision in recent memory. This sparked political controversy, especially after the recent dismissal of the BLS head. Markets, however, reacted positively, with bond yields falling as investors priced in more rate cuts. Stocks rallied on the dovish outlook, and the revision suggested stronger-than-expected U.S. productivity growth, averaging 2.1% over the past 12 quarters. Economist Ed Yardeni noted that robust GDP growth alongside a weaker labor market implies productivity could approach 3.0% through the decade, supporting a “Roaring 2020s” scenario.

This has led us to the Fed’s Dilemma and what to expect from the Market. The Fed faces a complex landscape: inflation ticked higher, but long-term expectations remain anchored, reducing risks of a steep spiral. A weakening labor market, with unemployment at 4.3% and rising jobless claims, supports rate cuts to spur growth. However, persistent inflation could temper the pace of cuts. Fed Chair Jerome Powell emphasized labor market concerns at the Jackson Hole conference, suggesting a cautious approach. Markets expect three rate cuts this year, per CME FedWatch data, despite pressures from President Trump to accelerate cuts. A court ruling upheld Fed governor Lisa Cook’s position amid attempts to influence the Fed.

Some good news in housing. Mortgage rates also reflected optimism, with the 30-year rate dropping to 6.28%—the lowest in nearly a year, down from 6.53% on September 2. Economists suggest rates could fall below 6% if next month’s jobs report disappointment. While last week’s jobless claims spike, primarily in Texas, may be an outlier due to the holiday week, it underscores labor market fragility.

Internationally? The global economic outlook for the final week of August 2025 is marked by cautious optimism tempered by ongoing concerns around tariffs, inflation, and sluggish consumer sentiment. In Asia, the Bank of Korea is expected to keep rates steady at 2.50% amid rising Seoul housing prices and household debt, while other regional economies including Australia, Japan, and Singapore will release key data on inflation, industrial production, and retail sales. Australia’s CPI is expected to show moderation, reinforcing the Reserve Bank’s recent rate cut, while Japan faces mixed signals with stable employment but sluggish retail activity and declining industrial output. Europe, meanwhile, continues to absorb the economic impact of U.S. tariffs, with Germany reporting a 0.3% contraction in Q2 and consumer confidence slipping further. France and Italy present more mixed results, and upcoming data releases on CPI and business sentiment will provide further insights. In the U.S., focus shifts to the second estimate of Q2 GDP, expected to be revised slightly up to 3.1%, though the Atlanta Fed’s GDPNow sees more moderate growth. Consumer confidence has weakened significantly, potentially affecting Q4 retail and hiring trends, despite strong Q2 output. With central banks around the world on edge, the coming week’s data will be critical in shaping policy responses for the remainder of the year.So, what do we make of all this? Markets took the data in stride, balancing rising inflation with expectations of Fed rate cuts. The labor market’s weakness, coupled with strong productivity, supports a cautiously optimistic outlook. As the Fed navigates this delicate balance, next week’s meeting will be pivotal.

Mike