As of 5:00pm 9/30/25.
Despite a recent pause, markets have continued their upward trajectory for most of September, with major index’s once again near record highs. The S&P 500 is up approximately 14% year to date, and about 37% since its April lows. The biggest drivers haven’t changed much over the past several months: AI – both from a capital investment and productivity standpoint, the potential for further Fed rate cuts, expectations for solid earnings growth, and optimism about tailwinds from this year’s tax reform bill.
Given that valuations are historically elevated – and with the S&P not experiencing more than a 3% drawdown in nearly six months – we believe a pullback would be both welcome and overdue. Corrections happen on a regular basis and should be considered normal and healthy, and often give markets a chance to reset. Seasonally, early October has often been a softer period for equities, which may provide a reason for investors to take profits.
Since the bear market low on October 11, 2022 (nearly 36 months ago), the S&P has gained about 90% including dividends. By comparison, the average bull market advances about 168%, with a median return of about 111%. Bull markets also tend to last an average of 60 months, with a median of 55.1 These figures need to be taken with a grain of salt, as no two cycles are identical, but they do suggest that this advance could still be in its middle innings.
Despite the market’s strength, uncertainties remain. Investors continue to weigh the ultimate effects of tariffs, Federal Reserve independence, recent labor market softness, a moderating economy, and the sustainability of AI-related spending.
It’s also interesting to note that following the Fed’s rate cut on September 17, the 10-year Treasury yield has counterintuitively risen. This may reflect long-term bond investors’ concerns about rising inflation, or that future funding needs will require more debt to be issued to fund the government’s deficit. While lower short-term rates generally support businesses through cheaper borrowing costs, rising long-term yields can increase government borrowing costs and keep mortgage rates elevated, potentially impacting consumers and housing activity. If this trend continues, and the 10-year rises substantially, it may limit the amount of rate cuts available to the Fed.
Finally, there appears to be a high risk of a government shutdown tonight if Republicans and Democrats fail to agree on a spending plan. This time could be different; however, historically, shutdowns have been a non-event for markets because they tend to be more of a political issue rather than an economic issue. The all-important employment report is scheduled to be released Friday morning and this may now be delayed depending on the course of Congressional negotiations.
Source: 1. LPL Financial https://www.lpl.com/content/dam/edam/series/weekly-market-commentary/stocks-following-playbook-weekly-market-commentary-09-08-25.pdf
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