These Dreams?

This week was all about the FOMC meeting and not so much the rate decision, but what the next couple of meetings hold in store for investors. Did the market get what it

wanted? This week's inspiration for the musings is the 1985 song, "These Dreams" by the band Heart. Here’s some trivia about the song:

• This song was released on the "Heart" album, which was a complete retooling of the band. Despite having played since 1967, this was the band's first #1 hit on the Billboard charts. The original members of Heart were gone, except for the Wilson sisters, when the "Heart" album was recorded. This song sold more than 1 million copies, but between this album and it's follow-up "Bad Animals" the band sold more than 10 million records, which was greater than all of their record sales for the previous two decades. They were inducted into the Rock and Roll Hall of Fame in 2012.

• Prior to the "Heart" album, the Wilson sisters had written most of the band's songs. However, Capitol Records, in their reshaping of the band's look & feel, wanted them to use outside writers. "These Dreams" was written by Martin Page and Bernie Taupin (who was Elton John's songwriter for many years). The two had written the #1 hit for Starship in "We Built This City." Their follow-up song "Boys In The Mist" was originally written for Stevie Nicks, but she turned it down. They renamed the song "These Dreams" and pitched it to Heart, who agreed to record it.

• Ann Wilson (brunette) was typically the lead vocalist of the band as she had a booming voice and a command of the stage. However, when the band listened to the song, they thought it was more suited to Nancy's voice. Nancy had a nasty cold when she first recorded her vocals for the song. Instead of making her re-record the song, producer Ron Nevison liked the raspiness of vocals and kept it.

• Despite the fact that Heart were trail blazers being the first rock band with sisters at the forefront, the internal distractions kept the band from sticking together. Ann Wilson had a long-term relationship with the band's manager Mike Fisher, brother to band guitarist Roger Fisher. Nancy Wilson began a long-term relationship with guitarist Roger soon after joining the band. When these relationships went south, the band ended up disbursing. The two sisters stuck it out and became even more famous in the band's 2nd iteration.

• The two sisters were not without their own discord, however. In 2016, Ann's husband was arrested for assaulting Nancy's 16-year-old twin sons over a dispute. The incident strained their relationship and the sisters did not speak for more than a year, until ultimately mending fences.

"Spare a little candle

Save some light for me

Figures up ahead

Moving in the trees

White skin in linen

Perfume on my wrist

And the full moon that hangs over

These dreams in the mist

These dreams go on when I close my eyes

Every second of the night I live another life

These dreams that sleep when it's cold outside

Every moment I'm awake the further I'm away"

Here's what we've seen so far this week..

Save Some Light For Me. Investors got what they wanted from the Fed in a 25 basis point rate cut on Wednesday of this week. But, could the Fed have started sooner?

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. Markets are already pricing in future rate cuts. Since mid-July, the yield on the 10-year Treasury is down 39 basis points, the yield on the 2-year is down 68 basis points, and the 3mth T-bill yield is lower by 23 basis points.

So what took the Fed 9 months to cut rates again after stopping in December of last year? Powell made it clear during Wednesday's rate announcement - jobs. Powell stated, "It's really the risks to the labor market that were the focus of today's decision." It is likely that Powell and others on the FOMC were aware that large revisions to jobs data were coming either through their own economic modeling or in discussions with Bureau of Labor Statistics officials. With regard to the revisions, Powell also stated on Wednesday, "BLS is working hard to fix factors behind jobs revisions." Well, I guess when you miss the number of jobs created by more than 1.7 million over the past two years, that might cause one to review one's process.

Full Moon Hanging Over? The fears that we're headed for a recession were stoked once again this week. It's like economists didn't get a full blown recession in 2022 so

they won't feel satisfied until we get one. 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.

The consumer continues to hold up the economy despite areas of soft data. 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. How are consumers holding up so well? The year-over-year growth in FICA Withholding is +9.8%. Consumers are earning more and spending. Until this dynamic changes, earnings growth for companies should continue.

These Dreams.  Investors' dreams of solid returns have certainly not been dashed up to this point in 2025. The market is trending above average so far this year, and

especially during the month of September. Historically, as we've pointed out many times over the last few weeks, September is a volatile month with weaker returns for equities. In fact, 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. Despite the weakness in March & April, 2025 has trended above average, which should please most investors.

Though markets are a little more concentrated that what is considered ideal, the frothiness has eased somewhat. May and June of this year were strong months for the S&P 500

Index - up +6.1% and +5.0%, respectively. However, during those months, the number of companies actually trading above their respective 200-day moving averages was only 51% at the end of May and 56% at the end of June. Those numbers have improved since the recovery in April to 63% currently. The expansion of corporate profits tells a stronger story than just the growth of AI. Corporate profit margins (after tax) are currently at +10.5%, which is the strongest since 2012. So, for those comparing the current market environment to the Dot.com bust, there are still reasons for stocks to continue growing.

Maybe not investors' dreams, but Heart was certainly for MTV viewers in the '80s...

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