Knowables: What to Expect & Look For - 09.09.2025
This September, we expect the stock market to face a mix of seasonal headwinds, economic uncertainty, and cautious optimism. Here's a breakdown of what to expect:
Seasonal Weakness Historically
· September is statistically the weakest month for the S&P 500, averaging a 0.68% decline since 1950, and a 2% average drop over the past decade.
· This pattern is often attributed to investor psychology and self-fulfilling expectations, where anticipated weakness leads to selling pressure.
· Real estate stocks, in particular, tend to underperform in September, rising in only 39% of Septembers since 1950.
Key Economic Indicators to Watch
Several major economic events could shape market sentiment this month:
1. The ISM Services Index is a monthly economic indicator that tracks the health and direction of the U.S. services sector. Compiled from surveys of purchasing and supply managers, a reading above 50 indicates economic expansion, while a reading below 50 signals economic contraction, providing insights into overall economic conditions and market trends.
a. The index grew to 52%, a 1.9-percentage point increase from July's 50.1%. This marks the third consecutive month of expansion for the services sector.
b. The services sector of the U.S. economy, which accounts for over 2/3 of economic activity, expanded in August.
c. While key metrics like business activity and new orders showed solid growth, the report also highlighted continued weakness in employment and backlogs of orders
2. Jobs Data
a. The August 2025 jobs report, released on September 5, 2025, showed a significant cooling of the U.S. labor market, with payroll growth nearly stalling and the unemployment rate rising
b. Employers added a disappointing 22,000 jobs in August, far below expectations.
c. The weak report reinforced expectations for a Federal Reserve rate cut at the September 17 FOMC meeting.
3. Federal Reserve Independence Concerns:
a. Political pressure on the Fed by the current administration, including attempts to remove officials, has raised alarms.
b. The Fed has kept interest rates high while most of the world has lowered rates substantially. This is the source of the criticism of the Fed.
Analyst Predictions for the S&P 500
Despite short-term turbulence, Wall Street remains cautiously optimistic for the rest of 2025:
Goldman Sachs: Target of 6,600 in 6 months, 6,900 by mid-2026.
Federated Hermes: Forecasts 7,000 by year-end.
UBS & Evercore ISI: More conservative targets of 6,000–6,250.
S&P 500 currently trades at ~6,420
These projections imply ~12% upside** from current levels, driven by:
o Strong corporate earnings (especially in AI and tech).
o Expected Fed rate cuts.
o Resilient consumer spending and GDP growth.
However, risks remain:
o High valuations (S&P 500 trading at 22.6x earnings vs. a long-term average of 15.8).
o Trade policy uncertainty, especially around tariffs.
o Potential earnings disappointments from mega-cap tech firms.
What This Means for Investors
Expect volatility: September may be choppy, especially in the second half.
Watch the Federal Reserve: Rate decisions and political developments will be key.
Stay Invested and Diversify: Look beyond the "Magnificent Seven" tech giants to sectors like healthcare, industrials, and consumer discretionary. Market breadth has been increasing in recent months.
Our Controllables writing later this month will focus on the importance of interest rates and how they should impact your investment decision making.
As always, please do not hesitate to call with questions or comments.
Disclosure:
The information provided in this newsletter is for informational purposes only and does not constitute investment advice. The recommendations and strategies mentioned may not be suitable for all investors. Each investor needs to review an investment strategy for their own particular situation before making any investment decision. Past performance is not indicative of future results. All investments involve risk, including the loss of principal.