Market Thoughts: Higher ground

The Bureau of Labor Statistics’ (BLS) recent revision to jobs growth in the year ending March gave the Fed a green light to cut rates. The U.S. saw 911k fewer jobs added than initially reported. To put that in perspective, it takes the average seasonally adjusted monthly job gains down from 146k, to something like 70k. Alarming? No. But labor markets are treading water.

August producer price data unexpectedly declined, adding emphasis to the BLS revisions. Year-over-year headline and core inflation came in as expected. The job market is weaker than thought. Companies seem to be holding back on price increases despite the weight of tariffs on margins.

Bond vigilantes have been pushed aside. We’ve seen a reignited running of the bulls. Investors are leaning into rate cuts as bond curves steepen. Pundits are pushing a hyped narrative about the pace and number of rate cuts ahead. Animal spirits are listening. Greed hears what it wants. So does fear.

That upbeat easing spin calls for four (or even five) successive 25bps cuts in September, October, December, January and then March. September is good to go. December, given recent jobs data, a strong maybe. The rest will be driven by data.

I’m bemused with the fuss about 100bps of rate cuts. Targeting a terminal policy rate of 3-3.25% over the course of the next nine months is reasonable. It implies U.S. growth of around +1-1.5% and core inflation that pushes higher, then settles. I continue to believe 3-ish% on core inflation into next year is digestible. A run to or through 3.5% brings back the bears.

I’m a ‘buyer’ of that base case economic trajectory given the data in hand and what remains a constructively cautious narrative from companies. We’ve just finished a series of C-suite meetings with banks. Credit delinquencies are stable. Credit continues to be extended. Steady as we go. As banks go, so goes the economy.

The consumer is OK. That storyline wavers across wealth demographics. The overall economy—which is what markets care about—is wobbly, but in good shape. Investors are eagerly awaiting deregulation. And hopefully, an ability to move past tariffs.

If investors have learned anything this year, it’s a better understanding of the art of the deal. High or low-ball anchoring (insert observations about tariffs and U.S. commitment to NATO) remain the rule of engagement and negotiation. The administration has shown an acuity of listening to markets. I expect that increases with mid-term elections coming into focus.

Seasonality in September and October can be wonky. The next big marker for investors is third quarter earnings. A month away. Consensus earnings this year call for the U.S. to grow 11-12%. I expect we’ll come in close to 10%. Next year’s call is for 11-13%. We’re modelling 8-10%.

European earnings are forecast to fall about 1% this year. For 2026, expected earnings growth is 11-13%. We’re modelling 7-8%. Why do we hold a modest underweight to Europe vs. the U.S. in multi-asset portfolios? Earnings. The U.S. has outperformed Europe over the past six months.

European equities were afforded a valuation ‘catch-up’ in large part thanks to Liberation Day. The dollar, to borrow a phrase, took a punch in the nose. It was due one. Where we go from here will be driven by central bank policy rate differentials. It feels like the biggest hit to the dollar is behind us. That’s an observation, not a forecast.

We continue to like specific companies and sectors in Europe and emerging Asian markets. Financials in Europe continue to look attractive, as they do in the U.S. We remain long big tech, including semis, in markets like South Korea and Taiwan. Also, the U.S. and Europe.

Emerging markets tend to be looked at by investors as an ‘amorphous’ block, all the same. They’re not. I would say the same about Europe. Asia represents about 80% of the MSCI Emerging Market equity index. China, South Korea and Taiwan have driven returns. An extension of the ‘big tech’ run we’ve seen across global markets.

A pause in market exuberance seems in order. Let’s get through the Fed, additional macro data and earnings. But the bulls keep running. If so inclined, at this point in the race be careful in the turns.

I want to transition to something far more grounding given the calendar. September 11th is a day I’ll always remember. I still get emotional. So does my family.

My wife was taking the Madigan twins to their first day of pre-school when the first plane struck. I frantically called to make sure everything was alright. Mobile service was jammed right after my call. They thought bridges and tunnels might be next. Cellular service turned off.

I had friends working downtown. I tracked each down to make sure they were safe. It took some until later in the day to respond (you know who you are). I was chatting with a trader who worked in one of the Twin Towers when the second plane hit.

Up until that moment, his building was telling everyone to shelter in place. Looking at the pictures streaming across TVs on our trading floor, I told him to leave. He did.

The global outreach in support of Americans and our democracy was inspiring. It was genuine. Apolitical. Embracing. United we stand, divided we fall. Words to reflect on. Words to live by.

I look back with pride on the resilience not only of New York, but America. We the People. Thank firefighters, police, emergency medical technicians, members of the military. In a moment where the narrative only seems to spin division, it offers meaningful perspective. Higher ground...

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 9/11/25.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.