Market Insights Recap — Week of September 1, 2025

Hi, my name is Steve Orr, Texas Capital's Chief Investment Officer. 

On tap this week: How about that economy? Rates and bulls in September? What should we be doing with our portfolios heading into week two of the season. 

Economic news gets a bit better each week. The government's second estimate of last quarter's growth was revised higher from 3% up to 3.3%. Consumer spending and capital expenditures marked higher. Negative side of the ledger? Pending home sales are falling year over year; higher rates and higher home prices are to blame. Inflation building and wholesale and producer prices. The core personal consumption expenditures, that's the Fed's favorite inflation gauge, is now running at a 2.9% rate, a five-month high. On the positive side ledger, low jobless claims tell us large layoffs are just not happening. Bottom line, second quarter bounce back after tariff shocks in the first quarter. Third quarter is shaping up as a new tariff normal, likely growing a bit above 2%. 

Positive profit growth and continued consumer spending mean no recession. 2026, we'll see corporate and consumer tax breaks kick in from the One Big Beautiful Bill to augment and someday replace government deficit spending. Finally, the details show private sector activity has slowed a bit this year, just enough to give the Fed food for thought. And Wall Street wants to feast on that food of lower rate cuts, the two-year Treasury note, yielding 3.65% versus the Fed funds at 4.25%, tell us that markets want two rate cuts by next April. But rate cuts are not a done deal. Producer inflation headed above 3%, consumer prices are going to be released on 9/11 and this Friday's job numbers may change the Fed's mind. 

Tariff uncertainty is back on the front burner, thanks to the court ruling over the weekend that Trump's use of IEEPA was not a proper way to implement tariffs. But the order keeps tariffs in place, so the key: no change right now in tariffs unless the Supreme Court takes the case. So rates remain low on the short end. But long-term rates are rising around the world as governments grapple with inflation and rising debt. 

So how about changes in stocks? Four strong months of summer. That's a rare event, only nine cases since 1950. Now September in these cases is a mixed bag. Some up, some down, but stronger than usual. 12 months later and eight of the nine cases, stocks were higher. So, bumpy September ahead, but long-term bull remains intact. 

So let's wrap it up. Economy continues to rebound from the first quarter's tariff trauma. Markets want rate cuts. This Friday's employment report is going to be a big data point for the Fed to consider those rate cuts. Money supply continues to grow above 4%, dragging inflation higher. Be wary of September corrections triggered by Congress shutting down government or Ukraine negotiations and lots of other headlines. Any questions? Email me at [email protected]; 'til next time.