September Markets in Focus

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Markets in Focus

Timely analysis of market moves and sectors of opportunity

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September 29, 2025: Fade the bubble noise and stay risk-on

BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA¹

Key takeaways

Despite pessimistic sentiment and headline-driven fears, the U.S economy and artificial intelligence-related sectors continue to show strength.
Remaining diversified, taking advantage of short-term volatility, and being mindful of near-term catalysts could provide an opportunity to lean into durable, secular growth themes.
With a potential U.S. government shutdown looming, investors should brace for possible delays in key economic employment data releases that may heighten market volatility during quarter-end rebalancing.

As we enter the final quarter of 2025, investor sentiment remains pessimistic, but looking forward we believe this pessimism is misplaced.²

While concern is common at market highs, a visible bifurcation of the economy and the barrage of Washington headlines are weighing on investors. These fears have fueled claims that artificial intelligence (AI) is in a bubble or that U.S. economic strength is a mirage. We disagree and continue to believe in balanced portfolios that have exposure to companies benefiting from the AI trade and economic resilience. With interest rates declining, investors may find opportunities to rebalance or deploy cash, but we recommend caution ahead of key catalysts this week: quarter-end rebalancing, a likely government shutdown, and the September payrolls report. Investors should be ready to use downside opportunistically and lean into the parts of the market exposed to the key long-term durable secular growth themes we have favored all year.

Gains across the S&P 500 have been broad-based this quarter
2025 third quarter-to-date S&P 500 Index sector returns

Chart showing 2025 third quarter-to-date S&P 500 Index sector returns

Source: Bloomberg, as of 9/26/2025.

There are a few cross-currents for the market to navigate in the short term before entering earnings season. It shouldn’t be a surprise to see some consolidation across the equity complex. Stronger than expected economic data is adding pressure to U.S. Federal Reserve (Fed) rate cut expectations. Currently, “good news is bad news” with respect to Fed rate cuts. Market pricing for Fed easing this year stands at approximately 40 basis points (bps) after recent changes. This is shallow relative to the Federal Open Market Committee’s (FOMC) median year-end dot and our belief that there will be two additional 25-bp rate cuts. Fed Chair Jerome Powell may be operating with one-sided data dependence heading into the end of the year to avoid labor market tail risks. However, there may be political costs to a sudden hawkish turn. It seems that Powell is trying to lower the temperature in the conflict with the current administration. If there is a strong nonfarm payrolls number above 100,000, the consolidation could accelerate. This could create a positive entry point for investors.

In addition to the Fed, there are also some cross-currents regarding sentiment and positioning.

There are a few clusters of froth in areas like nuclear power, quantum computing, and some AI supply chain stocks, including those in hardware, graphics processing units (GPUs), central processing units (CPUs), and application-specific integrated circuits (ASICs). Volatility has also been incredibly low, leading commodity trading advisors, volatility target funds, and risk parity strategies to near maximum long positioning. This leaves some of the momentum winners — notably U.S. tech and European banks — more susceptible to a pullback should volatility pick up from a global perspective. Algorithmic selling is ticking up and sits at its highest level since July, when we started the quarter with a vicious, short-lived rotation. These are all areas with strong fundamental strength and should be accumulated on weaknesses.

The likelihood of a government shutdown could also create some noise, but this too should fade. The biggest risk is a delay in the non-farm payroll report, which shouldn’t create any material headwinds. For example, in October 2013 a shutdown delayed the non-payroll release several days. That shutdown resulted in an initial shallow S&P 500 Index pullback of -2.5% and then a nice bounce back. Should we experience a market pullback this week, there is cash on the sidelines that we believe could provide a floor to any temporary selloff with dips buyable.

Past government shutdowns’ effect on equities and U.S. Treasury yields

Start	End	Length (days)	S&P 500 change	10-year yield change
9/30/1976	10/11/1976	10	-3.4%	-0.20%
9/30/1977	10/13/1977	12	-3.2%	0.13%
10/31/1977	11/9/1977	8	0.1%	-0.02%
11/30/1977	12/9/1977	8	-1.2%	0.08%
9/30/1978	10/18/1978	17	-2.4%	0.04%
9/30/1979	10/12/1979	11	-3.7%	0.64%
11/20/1981	11/23/1981	2	-0.1%	0.30%
9/30/1982	10/2/1982	1	0.9%	-0.01%
12/17/1982	12/21/1982	3	0.8%	-0.10%
11/10/1983	11/14/1983	3	1.3%	0.07%
9/30/1984	10/3/1984	2	-1.3%	0.05%
10/3/1984	10/5/1984	1	0.1%	-0.22%
10/16/1986	10/18/1986	1	-1.5%	0.13%
12/18/1987	12/20/1987	1	0.2%	0.05%
10/5/1990	10/9/1990	4	-2.1%	-0.17%
11/13/1995	11/19/1995	5	0.8%	-0.03%
12/15/1995	1/6/1996	21	0.3%	-0.08%
9/30/2013	10/17/2013	16	3.1%	-0.02%
1/19/2018	1/22/2018	2	0.8%	-0.01%
12/21/2018	1/25/2019	34	10.3%	-0.03%

Source: Bloomberg, as of 9/26/2025.

Investment Playbook

We believe easing financial conditions, resilient growth, and fiscal support should keep risk assets supported. Positioning is balanced, liquidity is ample, and extended sentiment is limited to highest momentum pockets of the market. This week’s technical rebalancing could reset higher-beta areas, offering entry points to themes with year-end potential. While noise around the government shutdown persists, we don’t believe it will have a meaningful impact on the market. We remain optimistic despite concerns and remain bullish about several key themes:

Staying long cyclicality. Strength in the macroeconomic data is bullish for cyclical equities into year-end. We are optimistic about the economy’s prospects for continued growth and see economists changing their tune by increasing their real gross domestic product (GDP) estimates for the third quarter and 2025 following upside data. For the Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index this week, keep an eye on new orders, which in August rose above 50, a level that indicates growth in the manufacturing sector. Further strength could provide a positive reading, particularly for domestic cyclicals. We favor industrial cyclicals that benefited from easing monetary policy, capital expenditures (capex) tailwinds from the One Big Beautiful Bill Act and expected earnings re-acceleration into 2026. Additionally, we favor financials to position around economic resiliency and increased capital market activity, given the push for deregulation. This remains the case today, and we believe we will see positive results from the big banks when they report third-quarter earnings results.
Leaning into AI 2.0. Artificial intelligence remains a central theme as hyperscalers continue to throw off cash and increase their capex, supporting the semiconductor complex and a number of downstream companies. The success of recent tech initial public offerings (IPOs) and a robust calendar is indicative of strong demand. Comparing volatility, momentum, and convexity of returns of the current AI cycle to the 1990s dot-com bubble shows that the current investor behavior is subdued. The leadership of this cycle remains highly profitable with clean balance sheets. However, there are bottlenecks to the AI buildout in the United States, which opens up potential AI 2.0 opportunities. For example, computer demand is surging, and U.S. power demand is rising by 4% year-over-year, compared with 1% historically. Additionally, there are opportunities to play a role broadening AI adoption and applications, including robotics.
Gold as a portfolio ballast. We are bullish on gold to augment portfolio diversification and provide a downside ballast to potential volatility around the Fed and quarter-end. Over the past 25 years, gold has not fallen when the Fed eased, and inflation was above 2%. Additionally, gold has returned approximately 13% annually during periods of inflationary easing. Demand remains strong in retail and central banks, and with increased politicization impacting the front and back end of the curve, we believe gold could provide a better hedge to downside than Treasuries in the near term. However, we should keep in mind the recent appreciation of the dollar and the potential for upcoming economic data to keep upward pressure on rates. Inflows into precious metal exchange-traded funds (ETFs), including gold, jumped to a record $13.5 billion in September, almost doubling August’s net influx. Also, since ChatGPT’s release, gold has outperformed the Nasdaq^® 100 Index. Regardless, we believe the potential remains for prices to continue to rise given strong demand and technicals.

What to watch

U.S. employment figures dominate the news this week with the release of the ADP^® National Employment Report™, the monthly Job Openings and Labor Turnover Survey (JOLTS) figures, weekly jobless claims, and then the September jobs report on Friday. However, with the likelihood of a government shutdown on Wednesday, payroll reports may be delayed and add increased volatility when there could be some factor rotation as investors complete the quarterly rebalancing process.

Several Fed officials are also scheduled to make public comments this week, with market-relevant comments most likely to come from Federal Reserve Bank of Cleveland President Beth Hammack on Monday, Federal Reserve Bank of Dallas President Lorie Logan on Thursday, and Fed Board of Governors Vice Chair Philip Jefferson on Friday.

Outside of the United States, the Caixin China General Services Purchasing Managers Index (PMI) and consumption data from the Golden Week holiday will be in focus, as well as the U.K. Consumer Prices Index and S&P Global UK Manufacturing PMI. The German Consumer Price Index and Eurozone Harmonised Index of Consumer Prices are also due.

¹ Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.

² Unless otherwise indicated, all data cited is sourced from Bloomberg as of Sep. 26, 2025.

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.

International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.

Definitions
ADP National Employment Report — A monthly report from the ADP Research Institute^® in close collaboration with Moody’s Analytics. The ADP^® National Employment Report™ provides a monthly snapshot of U.S. nonfarm private sector Employment based on actual transactional data.

Algorithmic trading — a method of executing trades using computer programs and algorithms. These algorithms are designed to make trading decisions based on predefined parameters, such as technical indicators, market conditions, and historical data. The primary goal of algorithmic trading is to maximize profits while minimizing risk and reducing transaction costs.

Artificial intelligence (AI) — Technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy. AI 2.0 refers to companies in industries that are poised to benefit from the growth of AI because they provide either the components, services, or power needed to run AI servers.

Ballast — In finance, ballast can refer to characteristics, factors or trading strategies that mitigate volatility or provide stability to a security or group of securities. The phrase, “the benchmark is not the ballast,” refers to risk of believing that the universe of securities within a single index provide the level of stability that investors might seek from subgroups of securities within the index.

Basis points (bps) — Measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.

Beta — A measure of the volatility or systemic risk of a security, group of securities, or portfolio compared with another security, group of securities, portfolio, or the market as a whole.

Bifurcation / bifurcated consumer base — A trend in consumer spending patterns created by two distinct segments of consumers: A more affluent and free-spending group, and a less affluent and more cost-conscious group.

Caixin China General Services Purchasing Managers Index (PMI) — A report compiled by IHS Markit that tracks sales, employment, inventories, and prices in China’s services industry. It is based on data compiled from monthly replies to questionnaires sent to purchasing executives in more than 400 companies. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. A reading above 50 indicates expansion, while anything below that points to contraction.

Capital expenditures/capex — Monies used by a company to buy, improve, or maintain physical assets such as real estate, facilities, technology, or equipment, and may include new projects or investments.

Capitulation — A general abandonment of an investment position by investors who sell en masse in reaction to changes in market sentiment or dynamics. The resulting marked drop in asset prices is watched as a potential end of a market decline, since those who held on to their shares during the capitulation are not expected to sell afterward.

Commodity trading advisor (CTA) — An investment professional or firm that provides client-specific advice on buying and selling futures contracts.

Concentration — The extent to which investments in a portfolio, group of portfolios, industry, sector, index, or particular geography or clustered in groups that share specific factors or other characteristics.

Consolidation — A term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.

Convexity — A measure of the curvature, or the degree of the curve, in the relationship between bond prices and bond yields. Convexity demonstrates how the duration of a bond changes as the interest rate changes. Portfolio managers will use convexity as a risk-management tool, to measure and manage the portfolio’s exposure to interest rate risk.

Cyclical — trends and changes in market conditions that occur as the economy passes through the business cycle’s stages of expansion, peak, recession, and recovery.

Dot plot — a U.S. Federal Reserve chart summarizing the Federal Open Market Committee’s (FOMC) outlook for the federal funds rate. Each dot represents the interest rate forecasted by one of the 12 members of the committee.

Eurozone Harmonised Index of Consumer Prices — A composite measure of inflation in the Eurozone based on changes in prices paid by consumers in the European Union for items in a basket of common goods. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing, and many other widely used products.

Exchange-traded fund (ETF) — A type of security that tracks a market index, sector, commodity, or other assets, but which can be bought or sold on a stock exchange the same way a regular stock or other security can. An ETF can be structured to track a wide variety of securities, including stocks, bonds, individual commodities, diverse aggregations of securities, and specific investment strategies.

Factor investing — An approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different kinds of factors.

Fade — An investment strategy of ignoring or trading against a prevailing trend in the market.

Federal Open Market Committee (FOMC) — Consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.

German Consumer Price Index — A monthly report on Germany’s inflation rate released by the Federal Statistical Office and based on prices paid for a wide range of goods and services including energy, food, and rents.

Gross domestic product (GDP) — The total value of goods and services provided in an economy during a specified period, often one quarter or one year.

Hawkish, dovish, and centrist — terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.

Hyperscalers — The largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.

Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index (PMI) — A measure of the prevailing direction of economic trends in the manufacturing sector. It consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.

Job Openings and Labor Turnover Survey (JOLTS) — A program that produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics. The survey’s job openings rates consider month-to-month changes in the number of job openings reported on both a state and national level.

Macroeconomic — The branch of economics that focuses on seeking to understand the interactions between the markets, businesses, governments, and consumers that make up an entire economy.

Momentum — Momentum investing strategies aim to capitalize on the continuance of existing market trends. It involves taking long positions on financial instruments with prices trending up and short positions on instruments with prices trending down.

Moving average — A technical analysis tool that smooths out stock price data by creating a constantly updated average price, often over a specified period of time, such as 15, 30, 50, 100, or 200 days.

One Big Beautiful Bill Act — An act passed and signed into law in July 2025 that raised the U.S. debt ceiling by $5 trillion, made permanent tax cuts created by the Tax Cuts and Jobs Act of 2017, and changed a wide range of other aspects of federal tax policy, made changes to health insurance legislation, phased out or reduced credits for clean energy production or use, and removed tax benefits for illegal immigrants, among other things.

Payroll report, officially known as the Employment Situation Summary — A monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.

Positioning — Assessments of whether professional investors are, on the whole, bullish or bearish on a particular security, industry, sector, market capitalization or other area of the market, as reflected by the extent to which they are invested in the area of the market in question.

Pullback — A temporary pause or drop in the price of a security that previously had been rising.

Quantum computing — a cutting-edge realm of computer science, leveraging quantum theory to revolutionize how complex computational problems are tackled.

Rebalancing — The adjustment of the mix of asset allocations to match the levels, guidelines, or risk tolerances prescribed by a portfolio’s investment plan.

Risk-on — Market sentiment that is typically fueled by a strong growth environment in which good news supports a bullish outlook and investor expectations of favorable risk/reward ratios.

Risk parity — an approach to investment management which focuses on allocation of risk, usually defined as volatility, rather than allocation of capital.

S&P Global / CIPS Flash UK Composite PMI^® — Compiled by S&P Global from responses to questionnaires sent to survey panels of around 650 manufacturers and 650 service providers, stratified by detailed sector and company workforce size, based on contributions to gross domestic product.

Tail risk — a form of portfolio risk associated with the increased possibility that an investment will move more than three standard deviations from the mean in a normal distribution. Left tail risks refer to unusually large losses. Right tail risks refer to unusually large gains.

Technicals — Indicators of historic market data, including price and volume statistics, to which analysts apply a wide variety of mathematical formulas in their study of larger market patterns.

U.K. Consumer Prices Index — A measure of consumer price inflation in the United Kingdom based a wide range of household spending, including on food, alcoholic beverages and tobacco, clothing and shoes, housing and utilities, health, transportation, communication, recreation, education, restaurants and hotels, and miscellaneous goods and services.

Volatility-targeting funds — these funds employ strategies to actively adjust their investment portfolios to maintain specific, predetermined levels of risk over time. They generally increase their exposure to riskier assets or increase leverage during periods of low volatility, and they shift to safer assets or reduce leverage in times of high volatility.

Whipsaws — rapid trend reversals or price movements in securities.

Yield curve — a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. A steepening yield curve results from a widening in the difference between short- and long-term interest rates. A steepening curve often reflects an expectation of stronger economic activity, rising inflation, and rising interest rates.

Indices
Nasdaq 100^® Index — a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market. It is a modified capitalization-weighted index.

S&P 500 Index — measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividends reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.

The S&P 500^® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.

811932 Exp. 1/29/2026

September 22, 2025: Maintaining risk-on positioning

BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA¹

Key takeaways

Despite unusual circumstances, the U.S. Federal Reserve (Fed) has resumed its rate-cutting cycle.
The Russell 2000^® Index hit its first all-time high since 2021, ending its second-longest stretch on record.
As the market digests upcoming comments from Fed officials, enters the corporate buyback blackout window, and awaits third-quarter earnings, it would be reasonable to see some consolidation.

It was another constructive week for equities, particularly for small caps: The Russell 2000^® Index hit its first all-time high since 2021.² The U.S. Federal Reserve (Fed) also resumed its rate-cutting cycle with a 25 basis point (bp) cut and supercharged an already constructive risk backdrop. Investors expect an additional 50 bps of rate cuts from the Fed’s remaining meetings this year.

This is a very uncommon rate-cutting environment. Markets are at all-time highs, corporate earnings and profit margins are rising across the market capitalization spectrum, and financial conditions are not particularly tight. In fact, the Fed’s revised median projections point to an economy that is doing quite well, with above- or at-potential growth and an unemployment rate that is stable around full employment.

The economy may also have a significant and persistent inflation problem; core inflation has been materially elevated since 2021. However, the Fed cut anyway, with a “risk management” cut following former Fed Chair Alan Greenspan’s playbook.

Current Fed Chair Jerome Powell’s dovish pivot at Jackson Hole, and his continued neutral-to-dovish comments last week, suggest that the Fed has a skewed reaction function. We would expect to see two more 25-bp cuts this year, even if data doesn’t materially weaken. This sets up a constructive environment for risk assets to continue their strong performance.

Performance isn’t linear, though. We wouldn’t be surprised to see the market take a bit of a breather as it digests upcoming public comments from Fed officials, enters the corporate buyback blackout window, and awaits third-quarter earnings.

Activity from commodity trading advisors and volatility-targeting funds is also near its most elevated level in the past few years, and it could exacerbate a shallow correction. Given the constructive earnings backdrop, investors should consider using dips opportunistically for exposure to the long-term durable growth themes that we have favored all year.

Some investors and economists might disagree with the Fed’s September rate cut — no emergencies currently justify rate cuts for a weaking economy — because markets have yet to see the delayed pass-through of tariff-induced inflation. Regardless of where you stand, the fact is that we’re in a rate-cutting cycle, and it supports the potential for stronger risk asset performance.

Small-cap companies may present the largest upside risk: These companies have strong technical momentum, light positioning, and improving earnings estimates.

The other unusual aspect of this rate-cutting environment is the long end of the yield curve, which is likely to remain well supported. If the data into year end (e.g., jobless claims and Retail Sales Reports) shows a resilient U.S. economy while the central bank eases further, it could resurface market concerns around the Fed’s independence. Those concerns would likely be expressed via higher medium- to long-term yields that could benefit the financial sector through stronger net interest margins and a benign backdrop for activities like mergers and acquisitions (M&A) or initial public offerings (IPOs).

There has also been quite a bit of noise over the past week, with NVIDIA’s investment in Intel, changes to the H-1B visa program, and ongoing discussions between U.S. President Donald Trump and China’s President Xi Jinping , notably around TikTok.³ The much-anticipated call between the two leaders didn’t yield many specifics, but there also wasn’t any escalation in tensions. Their verbal commitments to progress have been constructive enough for both countries’ markets to keep pushing higher.

It’s too early to make conclusions about NVIDIA’s investment, but we can at least infer that U.S. industrial policy, in this case, is encouraging companies to make investments and keeping domestic U.S. players relevant. This gives us increased confidence in the dynamism and durability of the artificial intelligence (AI) trade. It also emphasizes the need to focus on how U.S. industrial policy can affect other critical areas, like defense and energy.

Investment Playbook

We are in favor of staying long and risk-on, which has served investors well and could continue to do so heading into year end. We also favor adding to portfolio ballasts, which can help reduce overall portfolio correlation and insulate against a potential short-term pullback ahead of the third-quarter earnings season. This year has seen some meaningful factor whipsaws at month- and quarter-end, making it important to be prepared: The third quarter comes to a close in just over a week.

There are also ongoing claims that the AI trade is seeing a bubble; the most recent argument has pointed to triple-digit percentage gains across typically sleepy memory and storage stocks, which have been integral in building out AI data centers. These claims are nothing new, supporting the wall of worry that these stocks have scaled over the past few years – there are always stocks that get divorced from fundamentals, which is why it’s important to own the highest quality assets.

Small caps are biased higher. The Russell 2000 Index made a new all-time high last week (the first since November 2021), finally ending its second-longest stretch on record. We have been increasingly optimistic on small caps, and it’s worth noting that they remain meaningfully under-owned in portfolios. Short interest for Russell 2000 constituents appears to be higher than it was during the pandemic, and increased short covering in the coming weeks could contribute additional upward momentum.

After 967 days, the Russell 2000 Index has finally notched a new all-time high
Russell 2000 Index since 2020

Source: Bloomberg, as of 9/19/2025.
Consider gold as a portfolio ballast. Gold remains our favored way to add ballast and reduce equity risk in portfolios. The metal is up 40% year to date, and strong central bank demand and expected dollar weakness are providing additional scope for further gains, along with a decoupling from gold’s traditional relationship with real rates. During the recent market cycle, gold provided an effective hedge across most drawdowns for the equity market.
Apply regional and sectoral preferences. We favor remaining overweight U.S. equities, based on earnings and the AI growth story, with a preference for financials, information technology, communication services, and industrials. Japan stands out in developed markets, and its strong earnings revisions, improving corporate governance, and robust share buybacks are appealing. There are reasons for strength across not only the U.S. but also international markets, so this does not look like the time to decrease overseas exposure. In emerging markets, we suggest using pullbacks to consider adding to China, specifically its internet and technology companies. It may be time to take some profits on Korea and add selectively to India, although not with information technology companies.

What to watch

With the September Fed meeting behind us, Fed officials are speaking at 17 separate events this week. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, also published an essay explaining why he supported September’s rate cut and two more rate cuts this year. His estimate of the neutral rate has increased because “monetary policy has likely not been as tight” as he thought it was.

It’s a fairly light calendar for economic data. We’ll get the S&P Global US Flash PMI^® data for September and the final reading for second-quarter U.S. gross domestic product (GDP) data. The main events will be Core PCE and jobless claims, which will feed discussions around the speed and depth of the rate-cutting cycle.

¹ Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.

² Unless otherwise indicated, all data cited is sourced from Bloomberg as of Sep. 19, 2025.

³ This is a not a recommendation to purchase or sell the companies or investment products mentioned herein.

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.

International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.

Definitions
Artificial intelligence (AI) is technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy.

Ballast – In finance, ballast can refer to characteristics, factors or trading strategies that mitigate volatility or provide stability to a security or group of securities. The phrase, “the benchmark is not the ballast,” refers to risk of believing that the universe of securities within a single index provide the level of stability that investors might seek from subgroups of securities within the index.

Basis points (bps) — Measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.

Blackout window — A blackout window for corporate buybacks refers to a period around the time that earnings are reported that a company and its employees are banned from buying or selling shares in the company.

Commodity trading advisor (CTA) — An investment professional or firm that provides client-specific advice on buying and selling futures contracts.

Consolidation — A term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.

Core PCE, or core inflation — Officially known as the Personal Consumption Expenditures (PCE), excluding Food and Energy, Price Index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories (food and energy) where prices tend to swing up and down more dramatically and more often than other prices. Headline PCE data is the raw inflation figure reported monthly by the U.S. Department of Commerce Bureau of Economic Analysis. Core PCE data measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.

Correction — A decline in the market price of a security or index of more than 10% from its recent highs but not more than 20%.

Correlation — A statistic that measures the degree to which two securities move in relation to each other.

Cyclical stocks — Companies with stock prices that are influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.

Drawdowns — Declines in the returns of a security or group of securities, as measured over a period from the peak of returns to their trough.

Gross domestic product (GDP) — The total value of goods and services provided in an economy during a specified period, often one quarter or one year.

H-1B Visa – A visa authorizing the temporary employment of a qualified individual who is not otherwise authorized to work in the United States, issued under a program that assists employers looking to hire workers in specialty occupations.

Hawkish, dovish, and centrist — terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.

High-quality assets — Companies with low debt, stable earnings, consistent asset growth, and strong corporate governance, as reflected in financial metrics such as ratios of return to equity and debt to equity, as well as to earnings variability.

Jobless claims — Officially known as initial jobless claims and reported weekly by the U.S. Department of Labor. This report tracks the number of seasonally adjusted first-time claims that unemployed workers file for unemployment insurance.

Market capitalization, or market cap — The total dollar market value of a company’s outstanding shares of stock.

Mega-cap stocks are the largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.

Momentum — Momentum investing strategies aim to capitalize on the continuance of existing market trends. It involves taking long positions on financial instruments with prices trending up and short positions on instruments with prices trending down.

Moving average — A technical analysis tool that smooths out stock price data by creating a constantly updated average price, often over a specified period of time, such as 15, 30, 50, 100, or 200 days.

Net interest margin — Compares the net interest income a bank generates from credit products like loans and mortgages with the outgoing interest it pays holders of savings accounts and certificates of deposit. Expressed as a percentage, net interest margin is an indicator of profitability forward that reflects the chances of a bank thriving over the long term.

Neutral rate — The theoretical federal funds rate at which the stance of U.S. Federal Reserve monetary policy is neither accommodative nor restrictive. It is the short-term real interest rate consistent with the economy maintaining full employment with associated price stability.

Positioning — Assessments of whether professional investors are, on the whole, bullish or bearish on a particular security, industry, sector, market capitalization or other area of the market, as reflected by the extent to which they are invested in the area of the market in question.

Pullback — A temporary pause or drop in the price of a security that previously had been rising.

Purchasing Managers’ Index (PMI) — Measures the prevailing direction of economic trends in the manufacturing sector. It is created by the Institute for Supply Management (ISM), and consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.

Retail Sales Report — a monthly U.S. Census Bureau report that seeks to provide current estimates of sales at retail and food services stores and inventories held by retail stores, based on a survey of about 13,000 retail businesses, supplemented by estimates for other employers.

Risk-on sentiment — Typically fueled by a strong growth environment in which good news supports a bullish outlook and investor expectations of favorable risk/reward ratios.

S&P Global US Flash PMI^® (Purchasing Managers’ Index) – based on original survey data collected from companies based in the manufacturing and service sectors. The flash estimates is based on around 85% of total PMI survey responses each month and are designed to provide an accurate advance indication of the final PMI data.

Seasonality refers to predictable changes that occur over a one-year period in a business, market, market sector, or economy based on the season, including calendar or commercial seasons. Short covering – Buying back borrowed securities in order to close out an open short position at a profit or loss. It entails buying the same security that was initially sold short and handing back the shares initially borrowed for the short sale.

Short interest — The number of shares that have been sold short and remain outstanding. Short strategies anticipate that prices of specific securities will fall in the short term, and they typically involve selling those securities with plans to repurchase them later at a lower price.

Under-owned — securities believed to be trading at a level below their intrinsic or fair value due to a lack of interest.

Volatility-targeting funds — these funds employ strategies to actively adjust their investment portfolios to maintain specific, predetermined levels of risk over time. They generally increase their exposure to riskier assets or increase leverage during periods of low volatility, and they shift to safer assets or reduce leverage in times of high volatility.

“Wall of worry” — An expression in finance used to describe stock prices that rise even when external factors raise questions about the ongoing health of capital markets.

Whipsaws — rapid trend reversals or price movements in securities.

Yield curve — a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. A steepening yield curve results from a widening in the difference between short- and long-term interest rates. A steepening curve often reflects an expectation of stronger economic activity, rising inflation, and rising interest rates.

Indices
The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index, which represents approximately 7% of the total market capitalization of the Russell 3000^® Index.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell^® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

M-808428 Exp. 1/22/2026

September 15, 2025: To cut or to cut big? That is the question.

BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA¹

Key takeaways

This week’s big event will be the Federal Open Market Committee meeting, with U.S. Federal Reserve (Fed) Chair Jerome Powell at center stage.
The Fed cutting when the S&P 500 Index is at or near all-time highs is historically bullish.
There are plenty of opportunities for investors to lean into durable growth trends across this market while diversifying their portfolios.

Equities continue to march higher, fueled by renewed artificial intelligence (AI) enthusiasm and the prospect of a resumption in the interest rate cutting cycle this week. We have maintained our pro-risk approach as the S&P 500 Index was up every day last week and hit three more record highs.² We remain bullish for risk assets into the end of the year.

It is extremely rare for the U.S. Federal Reserve (Fed) to be in a cutting cycle at the same time that corporate earnings growth accelerates, and we see no reason to believe that the resiliency in earnings per share (EPS) growth will falter in the near future. That said, U.S. equities could be vulnerable to a short-term pullback as we move into a corporate blackout window and sit in a catalyst void between the Federal Open Market Committee (FOMC) meeting and the end of third quarter, after which earnings reports will start to pick up.

Plenty of risks also continue to lurk in the background. These range from seasonal headwinds to low volatility to policy risks to economic data, but the market has been climbing a steep wall of worry all year. We would argue that these risks are well reflected: just look down market capitalization, even despite the recent rally, or in sectors like energy or healthcare that have meaningfully lagged the broader market on cyclical or policy fears. However, we’re seeing more green shoots to support what has been very robust earnings growth and profitability, particularly for small- and mid-caps, which is why we have been bullish on the space.

It should be abundantly clear that there is long-term, durable staying power to the AI trade across many different parts of the market, reducing the impact of these broader risks to earnings growth. Financials have also been quite strong with broadly healthy consumer and corporate balance sheets, a steeper yield curve, and a resumption in initial public offering (IPO) and mergers and acquisitions (M&A) activity. When combining all of this together, we continue to believe that investors should consider using downside opportunistically and maintaining a pro-risk approach in their portfolios.

The big event that will drive markets this week is the FOMC, with U.S. Federal Reserve (Fed) Chair Jerome Powell speaking on Wednesday afternoon. Markets are pricing in a 100% probability for a cut of 25 basis points (bps) with growing chatter around the possibility of 50 bps. We think the latter jumbo cut is highly unlikely, though Fed Governors Christopher Waller and Michelle Bowman will likely dissent in favor of one. The key will be assessing changes to the summary of economic projections (SEP) and Powell’s tone during the press conference.

While we expect the SEP to show only two cuts for 2025, we think the most recent data makes it very likely that we get three 25-bp cuts: one each in September, October, and December. The front end of the curve is pricing in this scenario, and additional dovishness from Powell could lead to pricing more front-loaded easing with a 50-bp cut in the future.

With policy risks still elevated, we wouldn’t be surprised to see a resumption in yield curve steepening, which should benefit financials and small-cap equities. It should also be a reminder to investors still holding cash that they are likely running out of time to take action. Equities might be near all-time highs, but there are still potential opportunities. We would also note that Fed cutting when the S&P 500 Index is at or near all-time highs is historically bullish. Every instance of this occurring over the past 40 years has been followed by 1-year forward equity gains with a median return of 10.6%. We believe there are also opportunities across fixed income or dividend-paying equities to replace money market income. The key, in our view, is to execute a plan now as the clock is rapidly ticking.

Have longer-dated yields gotten ahead of themselves (like they did last time)?
U.S. 10-year Treasury yield since July 2023

Chart showing U.S. 10-year Treasury yield since July 2023

Source: Bloomberg, as of 9/12/2025.

Another reason we don’t expect a larger cut is that the recent labor market data might not be as bad as it seems on the surface. This is perhaps a reason why the market looked through the massive revisions to the jobs data last week and a jump in weekly jobless claims. It’s clear that the jobs market is not as strong as previously thought with the 2025 Preliminary Benchmark Revision to the Establishment Survey coming in at -911,000 versus the consensus expectation of -682,000. However, GDP growth suggests the economy is doing just fine, with the coming downward revision to employment mechanically implying that productivity growth was even stronger than we thought.

While not without its own issues, the unemployment rate doesn’t suffer from the same large revisions and provides us with a somewhat useful read on labor slack as well. It has been range-bound between 4.0 and 4.2% since May 2024, with the exception of the 4.3% August report. This is still a low level of slack with negligible signs of widespread layoffs.

We don’t foresee the unemployment rate rising materially, as labor supply has been constrained alongside a downshift in demand since the “Liberation Day” tariff announcement. Plus, we point out that real business sales, real personal incomes less transfers, and industrial production all suggest that the economy continued to expand at a healthy pace both last year and this year. Our intention isn’t to write off the recent signs of weakness we’re seeing in the labor market. Instead, it’s to show that the economy overall remains in decent shape – as we embark upon additional easing in monetary policy. We need to closely monitor the developments across the labor market and some signs of weakness popping up in lower-end and younger consumers, but right now the risks to a feed-through to earnings growth remain limited.

Investment Playbook

The most immediate question is whether the market is “buying the rumor” and will be ready to “sell the news” once we hear from Powell on Wednesday. There are certainly some pockets of exuberance in the market, while low volatility and falling correlations speak to the potential for a sharp, but buyable, pullback. Earnings remain strong (especially across the AI complex) while the broader S&P 500^® Equal Weight Index is just starting to break out above its last all-time high in 2024. This should serve as a reminder that there is a lot more working in this market than just AI, and there are plenty of opportunities for investors to lean into durable growth trends across this market while diversifying their portfolios. Here are the most topical ideas we see right now:

Don’t sleep on small caps. While the S&P 500 Index sits 35% above 2021 highs, small caps are still stuck below their 2021 peaks. This is a signal to us that the market and economy are not totally disconnected. The constituents of the Russell 2000^® Index tend to represent companies that are closer to the economy and to main street that could benefit from Fed help, unlike AI stocks that are already performing well. However, the recent small-cap rally follows a strong earnings season (with Russell 2000 EPS growth +6%, ahead of consensus by 1200 bps) and expectations of more aggressive Fed easing.

It has been over 960 trading days since the Russell 2000 Index made a new all-time high, the second longest streak on record. We suspect to see some momentum should the index break above its November 2021 highs. The risk-reward balance still favors thinking about adding exposure down the market-cap spectrum. Consider leaning into durable growth trends like AI supply chain companies as well as financials, which should benefit from a steeper yield curve.
Make sure you have portfolio ballasts. We have been advocating to consider increasing (or adding) exposure to gold this year, making a more aggressive push over the past few months. Gold has surged past $3,500 per ounce, up nearly 40% year to date (YTD), and it continues to catch a bid on U.S. rate cut expectations and central bank demand. The metal has provided an attractive ballast to some of the factor whipsaws felt in August, and with low correlations across the equity complex (especially across the Magnificent Seven), it is an attractive diversifier.

Flows have also been picking up with gold funds having the fourth-largest weekly inflow on record, showing that investors are starting to take notice. In addition to gold, it’s worth highlighting that dividend growth has provided opportunities for both capital appreciation, income generation, and ballast characteristics, especially during the choppiness we experienced last month. Quality has been middling this year, but it has provided insulation when needed.
Don’t forget about international. While the MEGA (Make Europe Great Again) trade might have taken a breather thanks to yet another upheaval in France, Asian equities have been on a tear, led by China and South Korea. Japan has also been able to look past an election and continue to post gains over the past week. We see several factors supporting the ongoing re-rating of these inexpensive Asian markets. Some of the key factors include a weaker dollar, upcoming rate cuts, and country-specific catalysts such as the Corporate Value-up Program in South Korea and the accelerating Tokyo Stock Exchange (TSE) reforms in Japan. China has also benefitted from strong earnings and AI updates from its key internet giants as well as from national policies that resemble those of the United States with respect to semiconductor production.

Within the emerging markets (EM) complex, Brazil has been a standout with the real continuing to post gains as former President Jair Bolsonaro was handed a 27-year prison sentence and amid strength across financials and commodity markets. India seems to be finding some footing, and a more positive tone on the trade front can help sentiment improve. Tax reforms are helping and hopefully lead to a resumption in earnings growth in the coming quarters that can allow the market to break out again to new highs. There are plenty of opportunities across the international equity complex, investors just need to be active in finding the right countries and companies in which to invest.
Play offense with defense. Given some of the elevated geopolitical conflicts, it seems appropriate to reiterate a key theme for 2025 that has continued to play out. Defense spending relative to GDP continues to rise across North Atlantic Treaty Organization (NATO) countries, and there’s no end in sight for the geopolitical conflicts around the world. We’ve seen very strong earnings growth posted by many companies across the aerospace and defense complex, and it’s worth re-highlighting opportunities here given the escalation in tensions over the past week. This is a durable growth theme, and we’re most enthusiastic about robotics, drones, and the communication software needed to conduct increasingly remote wars. There are opportunities across the market capitalization spectrum to get exposure.

What to watch

Focus will be on central banks this week, with the U.S. Federal Reserve (Fed) taking center stage. We’ll hear from the Fed, Bank of China (BOC), and Brazil on Wednesday, followed by the Bank of England (BOE), Norges, and the South African Reserve Bank (SARB) on Thursday, and the Bank of Japan (BOJ) capping the week on Friday. We’ll also get U.S. retail sales, housing data, and jobless claims this week, which should offer some updated clues on the ultimate direction of economic data.

¹ Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.

² Unless otherwise indicated, all data cited is sourced from Bloomberg as of Sep. 12, 2025.

³ This is a not a recommendation to purchase or sell the companies or investment products mentioned herein.

M-805063 Exp. 1/15/2026

September 8, 2025: The calm before consolidation?

BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA¹

Key takeaways

In between earnings seasons, the market may acknowledge employment weakness, experience inflation anxiety attacks, and hyper-focus on potential interest rate movements.
Over the past week, a 25-basis-point rate cut went from being a possibility to becoming the lower bound on expectations for the next Federal Open Market Committee (FOMC) meeting.
Despite the immediate concerns, resilient fundamentals and the proliferation of artificial intelligence — along with an increase in market breadth and investors seeking higher yields — could help the longevity of this equity bull market.

Equities have been going up and to the right since the market bottomed all the way back in April, enduring only minor turbulence during their ascent. The S&P 500 Index has increased by 30% since its post-Liberation Day low on April 8, and although it experienced a drawdown of roughly -5.5% in the latter half of April, it cleared May, June, July, and August without any drawdowns greater than -3%.² The same is true of the Nasdaq 100®: no drawdowns greater than -3% since the end of April.

Frankly, we believe that equity volatility is eerily low. At some point, the market will need some time to digest its gains. We think that will happen sooner, rather than later, and it would be reasonable to see a modest drawdown over the coming weeks.

While the market is between earnings seasons, it may come to terms with labor market weakness, experience coincident and repeated inflation-related anxiety attacks, and hyper-focus on potential interest rate movements during the most infamous seasonally weak period of the year for equities. But we aren’t bearish! Resilient fundamentals, the proliferation of artificial intelligence, and investors finally coaxed out of cash by lower short-term rates are all reasons for immediate caution tempered by long-term bullishness.

August nonfarm payroll data illuminates weak labor market
Month-over-month change to nonfarm Payrolls

Chart showing Month-over-month change to nonfarm Payrolls

Source: Bloomberg, as of 9/5/2025.

A week ago, a cut of 25 basis points (bps) was widely expected from the next Federal Open Market Committee (FOMC) meeting, but a September hold also seemed possible. Last week’s nonfarm payroll report strengthened the case for a 25-bp cut, and now the conversation has shifted to whether the next meeting’s cut will be 25 bps or 50 bps.

This is the root of current short-term risks: the market’s rapid and fickle re-pricing. What will happen to rate cut expectations (and subsequently, equity prices) if inflation re-accelerates this week? There is a risk that the market has already gotten over its skis with respect to month-end rates. And September’s FOMC meeting brings an additional variable: a refreshed summary of economic projections.

June’s summary of economic projections showed median committee members expecting both core and headline Personal Consumption Expenditures (PCE) Price Index inflation growing to 3% or more at the year’s end. The median expectation of a 3.9% federal funds rate also implied two 25-bp cuts by the end of the year. What happens if inflation is expected to accelerate while the fed funds rate is expected to go lower? There are already plenty of moving pieces. Add in the discussion of U.S. Federal Reserve (Fed) independence, and it’s easy to see how asset prices might get confused in the near term.

The market is sure to grapple with the pace and timing of rate cuts over the coming weeks, but we think it’s important to focus on the likely outcome: a lower fed funds rate. Rate cuts often coincide with an increase in market breadth, which can help this bull market’s longevity. And lower yields may encourage the $7.3 trillion in money market funds to start looking for a new home.

Now, back to the longer end of the curve. We think last week’s moves — a 4.08% yield for 10-year Treasuries — look overdone. Regardless of what the Fed does, we believe that the longer end of the curve will be buoyed higher by the possibility of re-accelerating inflation, concerns about the Fed’s Independence, and erratic decisions from the White House. These elements suggest a yield curve that remains steep and likely gets steeper.

Despite this, we remain constructive on equities while fixed-income investments face falling short yields and troubled longer-dated yields.

Investment Playbook

It’s time to consider getting out of cash while respecting both seasonality and latent risks. It’s not a good time for poor diversification. In fact, we continue to think that balanced portfolios are the surest way to weather any coming storm. That means having exposure to the large and small ends of the market capitalization spectrum, owning international and domestic equities, and investing in a range of sectors and industries.

We believe that patient investors can find attractive potential opportunities in the near term for selectively deploying their cash, including:

Small caps. This serially hated stratum of equities can benefit from expanding market breadth, interest rate cuts (that aren’t accompanied by growing recession fears), and earnings growth that could soon exceed that of large caps. The Russell 2000^® Index is up 10.2% quarter to date versus the S&P 500’s 4.7%. Be ready for investor attention and subsequent flows to funnel down the market capitalization spectrum.
Gold. Not only has gold recently broken out of its long consolidation, it can also provide a ballast to portfolios that are otherwise tethered to earnings growth and yields. Gold prices may benefit from increasing volatility fueled by concerns over Fed independence, the legality of tariffs, and U.S. fiscal drama. This shiny rock, which is classically “long disorder and disruption,” can offset more sensitive traditional assets.
The artificial intelligence (AI) complex. Last week, the readthrough from Broadcom’s earnings to the rest of the AI complex was resoundingly positive, and we are hearing fewer complaints about the gluttonous capital expenditures of hyperscalers.³ We believe that adequate exposure to capex beneficiaries and the mega-cap tech complex are necessities for the long-term investor. That said, as breadth expands, money is likely to move around at the top of the index.

What to watch

This week is going to be primarily about inflation, with Producer Price Index (PPI) data released on Wednesday and Consumer Price Index (CPI) data released on Thursday. Tuesday’s National Federation of Independent Business’s Small Business Optimism Index data and Friday’s preliminary data from the University of Michigan Index of Consumer Sentiment will provide key sentiment insights. Internationally, the biggest event will be Thursday’s European Central Bank policy rate announcement, which is largely anticipated to be a hold.

¹ Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.

² Unless otherwise indicated, all data cited is sourced from Bloomberg as of Sep. 5, 2025.

³ This is a not a recommendation to purchase or sell the companies or investment products mentioned herein.

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.

International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.

Definitions
Artificial intelligence (AI) is technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy.

Ballast, in finance, can refer to characteristics, factors or trading strategies that mitigate volatility or provide stability to a security or group of securities. The phrase, “the benchmark is not the ballast,” refers to risk of believing that the universe of securities within a single index provide the level of stability that investors might seek from subgroups of securities within the index.

Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.

Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean. Market breadth is said to narrow when a smaller number of more extreme outliers drive the mean of an index further from its median.

Capital expenditures, or capex, are monies used by a company to buy, improve, or maintain physical assets such as real estate, facilities, technology, or equipment, and may include new projects or investments.

Consolidation in the technical analysis of market dynamics refers to an asset trading within a well-defined pattern of trading levels. Consolidation is generally seen as a sign of market indecisiveness, and it ends when the asset’s rise rises or falls outside the range of the trading pattern.

Consumer Price Index (CPI) is a measurement of the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in urban areas across the country from about 6,000 households and 22,000 retailers.

Core PCE, officially known as the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. Headline PCE data is the raw inflation figure reported monthly by the U.S. Department of Commerce Bureau of Economic Analysis. Core PCE data measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.

Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.

Drawdowns are declines in the returns of a security or group of securities, as measured over a period from the peak of returns to their trough.

Federal funds rate, or fed funds rate, is the target interest rate set by the Federal Open Market Committee of the U.S. Federal Reserve. The target is the Fed’s suggested rate for commercial banks to borrow and lend their excess reserves to each other overnight.

Federal Open Market Committee (FOMC) refers to a committee of the U.S. Federal Reserve that sets monetary policy. It consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.

Fiscal drama refers to concerns over tax collection and spending used by a government to influence its national economy.

Fund flow is the net of all cash inflows and outflows into and out of a particular financial asset, sector, or index. It typically is measured on a quarterly or monthly basis. Investors and others look at the direction of fund flows for indications about the health of specific securities and sectors or the overall market.

Hyperscalers refers to the largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.

Liberation Day is a term used by President Donald Trump to refer to April 2, 2025, when he announced a wide range of unexpectedly high tariffs on many U.S. trading partners, triggering a global selloff of risk assets.

Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.

Mega-cap stocks are the largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.

The National Federation of Independent Business Index of Small Business Optimism consists of 10 equally weighted and seasonally adjusted variables. The monthly change of each variable contributes proportionally to the overall monthly change in the index.

Payroll report and nonfarm payroll report refer to the Employment Situation Summary, a monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.

The Producer Price Index (PPI), published monthly by the U.S. Bureau of Labor Statistics, measures the average change over time in the selling prices received by domestic producers for their output.

Rotation describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.

Seasonality refers to predictable changes that occur over a one-year period in a business, market, market sector, or economy based on the season, including calendar or commercial seasons.

Summary of economic projections is an analysis produced following meetings of the Federal Open Market Committee and includes meeting participants’ projections of the most likely outcomes for real gross domestic product growth, the unemployment rate, and inflation for a forward-looking three-year window and over the longer run.

University of Michigan Index of Consumer Sentiment is a survey based on monthly inquiries surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.

“Up and to the right” is a term meant to suggest rising stock prices charted on a graph where time is tracked on the x axis and price increases are tracked on the y axis.

Yield curve refers to a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. A steepening yield curve results from a widening in the difference between short- and long-term interest rates. A steepening curve often reflects an expectation of stronger economic activity, rising inflation, and rising interest rates.

Indices
The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.

The Nasdaq 100^® is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market. It is a modified capitalization-weighted index.

The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index, which represents approximately 7% of the total market capitalization of the Russell 3000^® Index.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell^® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

M-802454 Exp. 1/8/2026

September 2, 2025: Rotation doesn’t have to be a zero-sum game

BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA¹

Key takeaways

A tug of war within the S&P 500 Index has punished beneficiaries of extended momentum while cyclicals have improved, helping the index to rise even as it fuels questions around the durability of the artificial intelligence trade.
That said, this bull market remains fundamentally strong, underpinned by robust earnings growth.
In this environment, areas that Matt Orton, CFA, and Joey Del Guercio, CFA, are watching include small caps, long-term artificial intelligence winners that still have considerable potential, and gold and gold miners.

September historically tends to bring some seasonal headwinds to equities, but we believe this fundamentally strong bull market continues to have a number of paths to higher ground, even as winners rotate under the surface.

Global equities rallied for a fifth month in August, supported by strong earnings growth, rising interest rate-cut expectations, and continued enthusiasm around investment in artificial intelligence (AI).² While U.S. equities posted a positive return for August, China, Japan and Europe were the main outperformers. Part of the reason for the relative U.S. underperformance was an S&P 500 Index tug-of-war that has punished beneficiaries of extended momentum while cyclicals have improved, helping to keep the index in the green but fueling questions around the durability of the AI trade. While it’s encouraging to see breadth growing beneath the surface, it will be difficult for the market to continue pushing higher without the mega-caps finding their footing. Also, the rally in cyclical sectors like financials makes sense given the steepening yield curve, but we question the fundamental merits driving the gains in sectors like energy, healthcare, and real estate to some degree.

There is a barrage of important data leading up to the Federal Open Market Committee (FOMC) meeting on Sept. 17, and we expect the market to be on edge as we move deeper into a more seasonally challenging period. One key risk leading up to the FOMC meeting is that investors could “buy the rumor and sell the news” with respect to a September interest rate cut. If the data isn’t decidedly weak, which would further bring into question the strong gains for some of the cyclical rotation winners, there is a risk we get a cut with hawkish messaging from U.S. Federal Reserve (Fed) Chair Jerome Powell. Given that volatility and implied correlations remain low, there is a risk that any reset in rate expectations could lead to a pronounced pullback. That said, we remain optimistic about the market, especially about long-term durable growth trends like AI infrastructure and defense, and we believe that investors should consider pullbacks as opportunities to buy.

Now that NVIDIA has reported earnings results, it’s worth reflecting on the fundamental strength underpinning the bull market.³ For the second quarter, the blended earnings growth rate for the S&P 500 stands at 11.9% year over year (y/y) with 98% of companies reporting. That’s more than double analysts’ initial expectations of 4.8% y/y growth, and critically, margins remain robust at 12.8%. Not surprisingly, strength resides with the AI winners of communication services and information technology, but financials also reported strong margins, which is likely one driver behind their strength in the second quarter.

Brace for turbulence?
S&P 500 average monthly returns

Chart showing S&P 500 average monthly returns

Source: Bloomberg, as of 8/29/2025.

As we see investors take profits across these winners and move to other less expensive parts of the market, we caution against getting bearish. Rotation doesn’t have to be a zero-sum game, especially with consistent inflows to S&P 500 indexed products through retirement accounts or money coming into the market. Also, it wouldn’t take much movement out of just one or two of the mega-caps toward other durable secular growth parts of the market to provide some support for the momentum trade. Eventually, we also expect money moving into cyclicals to become more discerning with a balance of flows to companies with strong fundamentals, which could lift both secular and cyclical winners.

This week brings a key jobs report along with other important data on labor and business sentiment. Based on Powell’s remarks at the Fed’s Jackson Hole Economic Policy Symposium, it’s unlikely that a moderately better than expected report will be enough to prevent the Fed from cutting rates in September. That’s good, because we think there is a decent probability that we see a solid payroll report based on some alternative indicators that do not point to an abrupt deterioration in the job market.

The biggest risk for the markets is the forecast for cuts beyond September — after all, we are starting to see stalling of progress on inflation. The core Personal Consumption Expenditures (PCE) Index last week came in-line with expectations but was moving higher. In addition, inflation expectations in the University of Michigan Index of Consumer Sentiment remain stubbornly high. In the near term, however, the bar is very high to prevent a September cut and the market will likely run with this into Sept. 17. As such, we could see a continuation in the rotational chop beneath the surface and continued weakness to the U.S. dollar, which we believe should support emerging market assets.

Investment Playbook

We are optimistic on the market, especially once we get past the FOMC on Sept. 17. That doesn’t mean there won’t be some bumps in the road, especially with equity and interest rate volatility near their lowest levels this year. In addition to favoring secular winners like AI and defense and using downside opportunistically, we think that potential opportunities in financials and small caps stand out on the cyclical side. Gold is starting to emerge from a lengthy sideways consolidation and can offer a ballast to portfolios against worries over Fed independence — after all, gold is a long position for disruption and disorder. It also stands to benefit from continued central bank demand. Building balance with international exposure remains in focus, with a strong month for many developed and emerging markets. Ironically, we’re seeing the impact of U.S. policy support strong earnings growth for Chinese semiconductor companies as well as for the cloud and internet giants, and we suspect that the strong momentum in those areas can continue. We believe weakness for the market could present a buyable opportunity, so here are a few thoughts on our most top-of-mind areas of focus:

What to do about small caps? We’ve been talking about the potential for a more sustained turnaround in small caps for the past month. It’s encouraging to see this starting to play out. Earnings and top-line growth finally have inflected higher, with guidance broadly holding up. But earnings and revenue growth both remain below large caps, and the advances for smaller companies have been uneven. We think that has more to do with the nature of the rally, where smaller, lower-quality, and non-earning companies have driven performance across the Russell 2000^® Index. That said, we’re encouraged to see good performance and improving breadth across financials (which should work in an environment with a steepening yield curve and lower recession probabilities) and improvements in industrials while information technology remains in decent shape. Rather than chasing the rally higher, we expect to see buying opportunities based on the upcoming macroeconomic data, and we would look to use pullbacks to increase a tactical weight and to lean into what we suspect will be an area of inflows and performance into the end of the year, supported by fundamentals.
Rotation in long-term AI winners. The biggest momentum winners, most of which are tied to the AI trade, have been taking a breather. This is a healthy development for the market, not a sign that the AI trade is in the later innings. There could be a bit more turbulence to go, but that could present a better point for investors to consider accumulating exposure they may have missed. We also would push back adamantly against anyone using “bubble” to describe the boost that AI has provided to the market. That’s because it’s hard to have a bubble or even be later in the game when there’s no leverage cycle; when margins continue to hold up well above the market and most sector peers; and when there are long-term secular demand drivers based on changes to the labor force. Additionally, over the past 12 months, the United States has seen the least valuation increase across all major global markets and the strongest earnings growth, which has largely been driven by the hyperscalers and AI capex beneficiaries. We’re seeing software start to make a comeback, so that’s a part of technology where investors now might be able to find some opportunities until this rotation gives rise to a market that is more broadly in an upswing. Be patient and wait for the seasonal headwinds and macroeconomic dust to settle before looking to use pullbacks opportunistically.
Gold and gold miners. Gold looks interesting with a breakout emerging from sideways consolidation over the past few months. As rhetoric around the independence of the Fed continues to play out and as the legality of tariffs comes back to the forefront, gold can provide a ballast to risk-on positioning.

We also called attention to gold miners earlier in the year, and the miners have only just eclipsed their highs back from 2011 with gold itself 72% above its high from then. This could be a more pro-risk way to lean into gold and also to capture some of the positive impact of the rotation trade.

What to watch

This week’s main event will be the much-awaited U.S. August nonfarm payrolls report. It’s also the last time we’ll hear from Fed officials before their pre-FOMC blackout period starts.

While earnings season has largely closed, there are some important releases for the tech trade this week. There are also a number of investor conferences across cyclicals with plenty of fundamental updates to monitor.

Outside of the United States, we also get the Eurozone Harmonised Index of Consumer Prices flash estimate, the S&P Global UK Services and Construction Purchasing Managers’ Indexes, the China General Manufacturing Purchasing Managers’ Index^®, Australia gross domestic product, and the final public appearances of European Central Bank officials before the start of their quiet heading into their Sept. 11 monetary policy meeting.

¹ Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.

² Unless otherwise indicated, all data cited is sourced from Bloomberg as of Aug. 29, 2025.

³ This is a not a recommendation to purchase or sell the companies or investment products mentioned herein.

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Link(s) are being provided for informational purposes only.

Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.

International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.

Definitions
Artificial intelligence (AI) is technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy.

Ballast, in finance, can refer to characteristics, factors or trading strategies that mitigate volatility or provide stability to a security or group of securities. The phrase, “the benchmark is not the ballast,” refers to risk of believing that the universe of securities within a single index provide the level of stability that investors might seek from subgroups of securities within the index.

Blended earnings combine actual results for companies that have reported earnings and estimated results for companies that have yet to report.

Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean. Market breadth is said to narrow when a smaller number of more extreme outliers drive the mean of an index further from its median.

A bubble in finance refers to a rapid rise in asset prices, often fueled by speculative investors and borrowed capital, followed by a sharp contraction that sends prices crashing.

“Buy the rumor. Sell the news” is a saying in finance used by traders who focus on news try to make profits through timely trading that anticipates or reacts to news about a company or other market-moving development.

Capital expenditures, or capex, are monies used by a company to buy, improve, or maintain physical assets such as real estate, facilities, technology, or equipment, and may include new projects or investments.

The China General Manufacturing Purchasing Managers Index® is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 650 manufacturers.

Consolidation in the technical analysis of market dynamics refers to an asset trading within a well-defined pattern of trading levels. Consolidation is generally seen as a sign of market indecisiveness, and it ends when the asset’s rise rises or falls outside the range of the trading pattern.

Core PCE, officially known as the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.

Correlation is a statistic that measures the degree to which two securities move in relation to each other. Implied correlation is a measure of how closely the components of a given index track against one another.

Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.

Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.

An earnings surprise is when a company’s reported earnings either exceed or come in below the expectations of analysts who cover the stock.

The Eurozone Harmonised Index of Consumer Prices is a composite measure of inflation in the Eurozone based on changes in prices paid by consumers in the European Union for items in a basket of common goods. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing, and many other widely used products. The flash estimate is a preliminary look at Eurozone inflation, with the more detailed full report following two weeks later.

Factor investing is an approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different kinds of factors.

Federal Open Market Committee (FOMC) refers to a committee of the U.S. Federal Reserve that sets monetary policy. It consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.

Gross domestic product (GDP) is the total value of goods and services provided in an economy during a specified period, often one quarter or one year.

Guidance refers to statements from the managers of publicly traded companies that indicate whether they expect to realize near-term profits or losses and why.

Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.

Headwind is a term used to describe events or market forces that hinder the prospects for performance in an individual investment or group of investments.

Hyperscalers refers to the largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.

Indexed products are securities that track the performance of a specific market index, allowing investors to gain broad exposure to the area of the market represented by the index.

An inflection in an investment trend marks a sudden change in the direction and rate of change of investor behavior regarding particular securities or areas of the markets. Inflections can lead to either positive or negative change.

The Jackson Hole Economic Policy Symposium, hosted annually by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo., brings together dozens of central bankers, policymakers, scholars, and economists to discuss economic issues, implications, and policy options.

Leverage cycle refers to a broad macroeconomic cycle in which the use of leverage, or borrowed money, by market participants swings from too high in boom times to too low during crises.

A long position refers to the purchase of a security with the expectation that it will rise in value, reflecting a bullish attitude.

Macroeconomic refers to the branch of economics that focuses on seeking to understand the interactions between the markets, businesses, governments, and consumers that make up an entire economy.

The Magnificent Seven refers to the seven largest stocks by market capitalization in the S&P 500 Index, as of Dec. 31, 2024. Collectively they made up more than 25% of the market capitalization of the entire index. They are Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.

Margin refers to the profit a company generates, expressed as a percentage, for each dollar of sales. Gross margin is net sales less the cost of goods sold. It reflects profits before deducting selling, general, and administrative costs.

Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.

Mega-cap stocks are the largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.

Momentum investing is a strategy that aims to capitalize on the continuance of an existing market trend. It is a trading strategy in which investors buy securities that are already rising and look to sell them when they look to have peaked. It entails taking long positions on financial instruments with prices trending up and short positions on instruments with prices trending down.

Monetary policy refers to the decisions made by central banks to raise or lower benchmark interest rates or otherwise tighten or loosen credit to influence an economy’s growth, inflation, or employment levels.

The payroll report, officially known as the Employment Situation Summary, is a monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.

Positioning refers to assessments of whether professional investors are, on the whole, bullish or bearish on a particular security, industry, sector, market capitalization or other area of the market, as reflected by the extent to which they are invested in the area of the market in question.

A pullback is a temporary pause or drop in the price of a security that previously had been rising.

Quality investing is a strategy that seeks to invest in companies with low debt, stable earnings, consistent asset growth, and strong corporate governance, as reflected in financial metrics such as ratios of return to equity and debt to equity, as well as to earnings variability.

Risk-on sentiment is typically fueled by a strong growth environment in which good news supports a bullish outlook and investor expectations of favorable risk/reward ratios.

Rotation describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.

The S&P Global UK Sales and Construction Purchasing Managers Index are compiled by S&P Global from responses to questionnaires sent to purchasing managers.

Seasonality refers to predictable changes that occur over a one-year period in a business, market, market sector, or economy based on the season, including calendar or commercial seasons.

Secular trends are large-scale and ongoing changes in economies and societies that have the potential to drive broad and lasting economic, technological, social or other kinds of changes.

Tactical trading refers to relatively short-term investing decisions made in response to expected trends or changes in the market based on fundamental and technical analysis.

The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.

A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. A steepening yield curve results from a widening in the difference between short- and long-term interest rates. A steepening curve often reflects an expectation of stronger economic activity, rising inflation, and rising interest rates.

A zero-sum game is a set of circumstances where a gain for any one party results in a loss for another.

Indices
The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.

The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index, which represents approximately 7% of the total market capitalization of the Russell 3000^® Index.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell^® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

M-798090 Exp. 1/2/2026