The Fed Delivers

Investors pushed equities higher as the Fed delivered on a rate cut. As expected, the Federal Reserve cut the Fed Funds Rate by 25 basis points last week. The latest Dot-plot

for the rest of 2025 shows rates ending at 3.75%, which would indicate the Fed is willing to cut twice more - once in October and once in December. Powell made it clear during Wednesday's rate announcement that jobs were their primary concern as he stated, "It's really the risks to the labor market that were the focus of today's decision." However, Initial Jobless Claims and Continuing Claims are running lower the pre-recessionary levels as the market adjusts to fewer gains in government jobs.

Recession fears were once again stoked last week as comparisons to the Dot.com bust continue to be levied. However, if we look at some key metrics, we're just not seeing

the justification from the data yet. While the Sahm Rule indicator did briefly hit a warning signal back in August of last year, it has done nothing but track lower, which is something that doesn't happen if we're entering or in recession. Retail Sales were up +0.6% last month, higher then the +0.2% expected, and July's reading was revised higher from +0.5% to +0.6%. On a year-over-year basis, Retail Sales are up +5.0%, stronger than the previous month's reading.

The market is trending above average so far this year, and especially during the month of September. The average return for the month of September is -0.6% over the last 20

years. Yet, the S&P 500 Index is up +13.3% so far this year, while the historical annual return over the last 20 years is +11.7%. The index is also up +2.3% so far in the month of September, ahead of the historical average. Market breadth has improved since the initial March-April pull back. Breadth was lower in June & July despite the market rising. However, over the last couple of months, breadth has improved while corporate profit margins are rising. Corporate profit margins (after tax) are currently at +10.5%, which is the strongest since 2012. We may ultimately reach a level comparable to the Dot.com bust, but we're not there yet.

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