September 29, 2025

“The most important quality for an investor is temperament, not intellect.”

Warren Buffett

With a strong finish last Friday, the week’s losses were erased or mitigated. But first here are the numbers. The S&P 500 was slightly off .16%, the Dow Jones Industrial Average actually gained .09%, Nasdaq finished down .54%. Internationally, the FTSE100 led the way up.74% and the MSCI-EAFE gained slightly. The 2-Year treasury paid 3.643% and the 10-Year yield was 4.174%.

So, what happened? After 3 down days nerves and uncertainty gripped the market until the Fed and Inflation numbers fell in line. However, as Frank Cappelleri, founder of technical analysis firm CappThesis also made the case that this latest skid is a “normal pullback” after the market appeared to be short-term extended. Looking at the S&P 500’s relative strength index moved into overbought territory for the fourth time since the S&P’s April lows, but Cappelleri notes the prior three times the market’s drawdowns were “minimal at best.” Whether a bigger decline is coming depends on if the next dip is bought, and, if so, how the market bounces, he argues “Buyers have been repeatedly and instantly rewarded with new highs soon after buying prior dips,” Cappelleri says. “If and when that does not happen, and instead a lower high results, that could mark a shift in momentum from the decidedly positive trend of the past five months to something more negative. Those are all a few steps ahead, but it’s a scenario worth watching as the market continues higher.”

Good news on the labor market as Initial jobless claims fell by 14,000 to 218,000 in the week ending Sept. 20, the Labor Department said Thursday. That’s the lowest level since mid-July. Economists polled by The Wall Street Journal had estimated new claims would rise by 4,000 to 235,000.

Interest rates after the recent 25 basis point cut? As the economy powers along, investors are dialing back their expectations for rate cuts. The odds of two quarter-point cuts by the end of the year now stand at 60%, down from 82% last week. Higher rates mean investors are generally less willing to pay higher multiples for stocks.

What about inflation? As Barrons Megan Leonhardt reports, markets didn’t react much to the latest release of the Fed’s preferred inflation gauge last Friday, with stocks picking up enough steam to break their three-day losing streak. The declines come amid an increasingly complicated picture from the economic data. The latest release on Friday showed inflation ticked up for the fourth consecutive month in August. Still, it doesn’t seem like inflation is growing enough to throttle consumer spending—and economic growth and labor measures delivered good news this week. The Personal Consumption Expenditures Price Index rose 0.3% month over month in August, translating to an annual gain of 2.7%. That’s up from a rate of 2.6% year over year in July. Core PCE inflation, which excludes food and energy costs, increased 0.2% on the month in August, keeping the annual gain steady for the second month in a row at a rounded 2.9%. The persistent, albeit slow, uptick in inflation continues to complicate the Federal Reserve’s path forward. Inflation remains above the Fed’s 2% target amid more modest economic growth and weaker employment conditions. But the fading resilience of the labor market doesn’t seem to be putting a stop to consumer spending. Expenditures rose at a healthy monthly rate of 0.6% in August.

How do Mortgage Rates and Recent Trends look? As of late September 2025, U.S. 30-year fixed mortgage rates have shown volatility but are trending downward overall, influenced by Federal Reserve rate cuts and easing inflation pressures. Rates dipped to a three-year low of 6.13% earlier in the month, spurring a surge in refinancing applications to 1.6 million. By mid-September, they stabilized around 6.26%, the lowest since early 2024, before ticking up slightly to 6.30% for the week ending September 25, according to Freddie Mac data. The 15-year fixed rate followed suit, rising to 5.49% from 5.41% the prior week.

Forecasts suggest further moderation: Fannie Mae projects rates ending 2025 at 6.4% and dropping to 5.9% by late 2026, potentially boosting home sales to 5.16 million units next year. This decline has fueled optimism, with refinancing share expected to rise from 26% to 35% of originations by 2026. However, rates remain elevated compared to pre-2022 levels, contributing to affordability challenges—especially as they briefly exceeded 7% earlier in 2025.

Public commentary on X reflects mixed sentiments: Some users credit recent drops to policy pressures on the Fed, noting a shift from 6.94% to 6.26% as a win for buyers, while others debate historical comparisons, pointing out rates were sub-6% under prior administrations. In California, stabilizing rates and home prices lifted August sales modestly, per the California Association of Realtors.

Housing Starts: Current Data and Challenges U.S. housing starts fell sharply in August 2025, dropping 8.5% month-over-month to a seasonally adjusted annual rate of 1.307 million units—the lowest since mid-2020—missing consensus expectations for a milder 4.4% decline. Single-family starts declined 7.0% to 890,000 units, while multifamily starts dropped 11.7% to 417,000 units. Building permits also weakened, falling 3.7% to 1.312 million units, signaling subdued future activity. This pullback stems from economic uncertainty, but an inventory of unsold homes (the highest since 2009) is deterring new projects. Homebuilder sentiment remains low, per the National Association of Home Builders’ September survey.

Lower mortgage rates provide a lifeline for refinancing and could eventually lift buyer demand, but housing starts lag due to supply-side hurdles. Without faster inventory absorption and cost relief, production may not rebound soon, exacerbating the national 3.7-million-unit shortage. A potential government shutdown next week could add volatility to rates, though experts predict minimal long-term impact if resolved quickly.

More in our quarterly letter to our clients next week.

Mike