U.S. Markets

Financial markets are caught between anticipation and tension, with equity indices hovering near record highs even as economic uncertainty builds and inflation resurges, complicating the Federal Reserve’s widely expected rate cut decision. On September 11, the Dow crossed 46,000 for the first time, while the S&P 500 and Nasdaq Composite also hit record highs. This rally has been fueled by investor optimism ahead of the Fed’s September 16–17 meeting, where markets are pricing in a 96% chance of a 25 basis-point cut(1). Yet beneath this bullish surface lies a more troubling picture: consumer prices rose 2.9% annually in August, the fastest pace since January, driven by higher gas and food costs as well as tariff pressures on goods(2), while jobless claims climbed to their highest level since October 2021 and unemployment ticked up to 4.3%, underscoring real weakness in the labor market(4).

The bond market has offered a sharp contrast to equity optimism, with Treasury yields signaling rising concern. The 10-year yield briefly dipped below 4% to its lowest level since April, while the two-year reached its weakest point since 2022. Treasures have returned 5.8% in 2025, the strongest performance among the world’s largest 15 bond markets in local currency terms, underscoring the flight to safety amid labor market strains and expectations for aggressive Fed easing. If the S&P 500’s current forward P/E of 22.6 holds through the Fed’s expected rate cut on Wednesday, it would mark the highest valuation at the time of a cut since at least 1990. Meanwhile, corporate earnings expectations for Q3 2025 remain solid, with analysts projecting 6.5% year-over-year growth for the S&P 500, potentially the ninth straight quarter of gains.

Global Markets

Global economic signals add to the uncertainty. China’s economy showed pronounced weakness in August, with industrial output growth and retail sales both posting the weakest readings of 2025, raising concerns about broader global growth prospects(4). In contrast, Europe offered modest signs of stabilization, with the STOXX Europe 600 Index rising 1.03%. Even so, trade risks and political instability continue to weigh on the region, underscoring the uneven backdrop facing investors as they assess opportunities and risks in the months ahead.

Bottom line

Despite economic crosscurrents, resilient corporate earnings, Fed policy support, and attractive global valuations continue to underpin risk assets. The Fed’s upcoming rate cut could unlock opportunities across equities, fixed income, and emerging markets, particularly those benefiting from dollar weakness. This environment calls for tactical patience rather than retreat, as earnings momentum and policy support provide a foundation for disciplined risk-taking. The Fed’s decision this week will likely set the market tone through year-end, shaping sector rotation, duration strategies, and international allocations.

(1) Source: CME Fed Watch Tool, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
(2) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
(3) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
(4) Source: CNBC, https://www.cnbc.com/2025/09/15/china-retail-sales-industrial-output-slow-in-august-missing-estimates-as-real-estate-slump-worsens.html