In-line Nvidia earnings and Core PCE Price Index introduce September, usually a bleak month for equity returns. Look to the August Labout Report on Friday for clues about the economy and inflation, in a moment where economic forecasts for 3Q25 are strong. The Fed on 17/9 could revive things with a 25bp cut; we may have 1/2 more until the end of the year. We are entering a more difficult and volatile market until early October and the 3Q25 earnings report. Oracle, in early September, can give us an idea of how strong the overall demand was in July and August. The biggest tail risk is the US Economy falling into a recession (35% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 1st – 5th September 2025

Economic data highlights of the week

Mon: US, CA – Holiday, EU Manufacturing PMi (8/25), EU Unemployment Rate (7/25), EU ECB President Lagarde Speaks

Tue: EU CPI (8/25), US ISM Manufacturing PMI (8/25), US Atlanta Fed GDPNow (3Q25)

Wed: AU GDP (2Q25), UK Services PMI (8/25), EU PPI (7/25), US JOLTS Job Openings (7/25), US Beige Book

Thu: CH CPI (8/25), US ADP Nonfarm Employment Change (8/25), US Initial Jobless Claims, US Services PMI (8/25), US ISM Non-Manufacturing PMI (8/25), US Fed’s Balance Sheet

Fri: UK Retail Sales (7/25), DE German Factory Orders (7/25), EU GDP (2Q25), US Nonfarm Payrolls (8/25), US Average Hourly Earnings (8/25), US Unemployment Rate (8/25)

Performance Review

Source: Google

InflectionPoint reports:

* Alive and kicking. The update to the US GDP numbers last Thursday managed to restore confidence in the local economy, with the 2Q25 revised data coming in at 3.3%. The much expected Core PCE Price Index was in line at 2.9%, although FOMC Member Christopher Waller, already considered to be a leading candidate to be the next Fed Chairman, mentioned a cut by 25bp in September and more later. While this will be a short week as the US celebrates Labour Day today, it is a very important week as there will be many important economic updates, including the August labour report, and we will be getting closer to Oracle’s earnings date, likely to be set this week. The earnings data, back live after the August lull, did not change the picture that much, but reinforced a solid momentum towards growth, at a time in which most investors are worried about a slowdown, particularly in the US. We now enter a difficult period (more later), as the first half of September has been historically weak; and while a compression to the multiple can happen at any time, I would continue to focus on economic data and earnings, which so far have been a positive surprise in 2025. Reporting for 2Q25 is practically over, with 98% of S&P 500 companies having reported results; and we have about 5-6 weeks in front of us before we can get to know how 3Q25 has unfolded. Nvidia’s report was good, as usual, but failed to have a positive surprise, as sales to China haven’t materialised yet (in part because the company has to agree with the US on how to deliver its demanded 15% cut). It was so notable to record the first meeting between Preidents Xi, and Putin, and Prime Minister Modi in Beijing, at the same time when the US is lifting tariffs on India to 50%. It looks as though a new world order is in the making, wherein countries are either for the US, or against the US. This is particularly worrying for Ukraine, because President Trump’s efforts haven’t had much success as the bombings are continuing, leaving the problem in the hands of the Europeans, who might, at some point, have to do something. Finally, the attempt by President Trump to remove FOMC member Lisa Cook will likely lead him on a difficult legal fight that might involve the Supreme Court of the US at some point, with crucial implications for the Fed’s independence.  The more general risk is related to a game of musical chairs with AI capex. It is difficult to assess at which stage we are in the development of AI, but if I have to guess, I would say we are in the third inning. The dark memory of the 1998-00 optical networking (and technology) craze is that employment vanished immediately after the first preannouncements, so yes, it pays to keep attention to earnings. Next week, after Nvidia, we will finally have an update about these after the summer lull, and then we will have the Oracle earnings report, likely on September 8th, to give us a clue about how business was in July and August. With so strong Capex numbers from the likes of Microsoft, Alphabet, and Meta, among others, it is difficult to imagine that demand will fall off a cliff, but we should pay attention to any reductions and see if these represent a potential trend. Regarding the Fed, it is now very likely that the first cut will take place at the September meeting; the current forecast for December 2026 sees 5 cuts, of which 2/3 this year and 3 next year. As long as these 5/6 cuts are coming, I don’t think that investors should be concerned about when they will happen – of course, the sooner, the better – but April is going to be the last FOMC Meeting of outgoing Chairman Jerome Powell, and possibly the installation of a new, more market-friendly Chairman. The overall feeling is that earnings were much, much better than investors thought, and the fear of the slowdown didn’t quite materialise – so far. Please be aware that there are some strategists, notably Morgan Stanley’s Mike Wilson, who think that the market can have a downside of 15% in two traditionally difficult months – September and October. While I think that is entirely possible, I think it will be very difficult to time the market, and I’m reluctant to pull the plug now, at least until Oracle’s report, tentatively on September 8th. The USD lost some further ground and is now trading just above 1.17.  Furthermore, the US Investment Bank has reduced its odds of a US recession to 35% from 45%. Keeping equities to buy (with the famous 3% weekly stop), keeping US bonds to hold, and European bonds to buy (with the notable exception of France), and remaining positive on the CHF, which seems to be the only currency to hold its value no matter what (the SNB has one of the lowest interest rates among major countries at just 0.00%). 

* GDP forecasts for 3Q25 seem to be good, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 22.4x is above the average P/E ratio of the last 5 years at 19.9x and the 10-year average at 18.5x. David Kostin believes that the multiple can hold over the next 12 months; it is the same assumption I had back in 1999, when the multiple was 24x. That multiple lasted for the good part of almost two years, and despite the fall in 1H00, technology stayed strong through the summer, until the Intel preannouncement in September sealed their demise and gave way to 2 years of bear market. Given the capitulation from early this year,  I would love to think that we have seen the lows in 2025, leaving room to grow, even with a multiple which begins with a 2, but continue to diversify and use prudent risk management. 

*  The Federal Reserve was on hold in July, as expected, and Chairman Powell mentioned that the outlook is becoming more uncertain, chiefly due to the impact of tariffs. As mentioned previously, there were two dissenters, who voted for a 25bp cut – this is the first time this happened since December 1993, so indeed a very rare event. While after the meeting, a cut in September seemed unlikely and 50/50 at best, things changed completely after the July labour report on Friday, and were confirmed after the Jackson Hole summit. September seems like a good chance for a first cut (87.6%), with a possible second cut in October ( 46.8%). The forecast for December 2025 currently prices in 2 cuts, with rates at 3.75-4.00%, but leaves the door open to a potential third cut (39.5%). Goldman Sachs thinks the US Central Bank is going to cut three times in 2025, once per meeting. If we look at December 2026, at the moment the forecast sees rates split 50/50 between 2.75-3.00% and 3.00-3.25%, hence with 3/2 more cuts during the next year, with the additional possibility of another one if the pendulum swings in the right direction. Be wary of aggressive Fed cuts because they might signal an upcoming recession; non-recessionary interest rate eases are always welcomed by equities. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), but it is increasingly difficult to get these in the US. You can look forward to these in Europe, even though the European Central Bank might finish its easing cycle (with the Fed yet to start) with a last cut in September.  

* Yields on US 10-year Treasuries have reached 4.25%, and were slightly down last week, while most European government bond yields were up. Among the developments in Europe, it has been signalled that the 5-year OATs have a similar yield to equivalent BTPs. France is addressing its issue by starting to work more, as Easter Monday will no longer be a holiday. An article from the leading French newspaper Le Monde states that Italy is now as credible as France, if not even more so, when it comes to public finance and spending. The French Prime Minister Bayrou faces a confidence vote on 8 September which may not save his government. We’ll see what is President Macron’s next move should that happen, but recall that it was the left who won at the latest elections in France, and they will be reluctant to tighten the belts in order to face mounting government spending. Meanwhile, Italy’s credit rating was raised by Standard & Poor’s in April. While in 1999 yields were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. The 2025 S&P 500 bottom-up earnings estimate has continued its strong bounce to 268.48 and is close to the original forecast of Goldman Sachs of $268 per share, while being well clear of the revised top-down estimate of 262. In 1Q25, earnings were strong; more of the same, so far, for 2Q25. There is now a worry that there will be a slowdown, so let’s watch closely both the GDP estimates and the earnings estimates (Oracle) for 3Q25. I remain optimistic, particularly on technology (the main driver for the S&P 500). Estimates for 2026 also seem to be on the rise and well above David Kostin’s forecast of $280 per share, representing a 7% growth from his revised forecast of $262 for 2025. If we applied the same growth to his original forecast of $268, we would get a target of $286.

Source: FactSet

* The US GDP closed 2Q25 with a reading of 3.3%, according to the latest figures released last week. The Atlanta Fed GDPNow model starts its forecast for 3Q25 in positive territory, with a current forecast of 3.5%, significantly up from 2.3% last week, and as usual, is ahead of the Blue Chips consensus, which is currently around 0.9%, starting to move slightly upwards. The New York Fed’s Nowcast model has a current forecast of 2.21%, up from 2.01% last week. I believe it is prudent to make an average of those two forecasts to get to the real number; it is particularly good that these are now converging. Earnings growth for 2Q25 is now 11.9%, compared with a forecast of 4.8% as of June 30th. Revenue growth is slower, but also revised higher, at 6.4% in 2Q25 vs 4.2% as of June 30th. Introducing a forecast for 3Q25, with earnings expected to climb by 7.5%, compared with a forecast of 7.2% as of June 30th, and with revenues growing by 6.1% vs 4.8% as of June 30th. For 2025, earnings growth is forecasted at 10.6% vs 8.9% as of June 30th, with revenues coming in at 6.0% vs 5.0% as of June 30th. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (July 2026) 25.70%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise given such a forecast. The current level is not too far from what economists are currently predicting: a 35% chance of a recession in 2025.

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 2Q24 is now ending. Here’s a list of companies reporting this week. 

Source: Earnings Whispers

Market Considerations

Source: FRED, St. Louis Fed, ISABELNET.com

Source: Goldman Sachs, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 6.0% (5.0% on June 30th), and earnings growth estimates for 2025 are predicted to grow by 10.6% (8.9% on June 30th), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.4% (6.3% on June 30th) and earnings to grow by 13.4% (13.8% on June 30th). As mentioned, the Fed has cut its rates by 100bp in 2024 and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which the Central Banks are willing to cut rates and their timeframe.  

Two highlights this week. First, we have a chart from the Federal Reserve of Saint Louis, which highlights that at the moment there little risk of a recession, with the index at 0.6%. If and when it reaches 5%, a recession will likely follow. It is worth noting that, unlike the recession calculation from the yield curve done by the Cleveland Fed, this model did not flash a recession even when the latter did. The second chart, from Goldman Sachs, shows that September is usually a very poor month in terms of expected returns. This time, however, the Fed might come into play, and I don’t think that a cut is already incorporated into current prices. As usual, what will say is more important than what they will do. 

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. In particular, I have noted that Berkshire Hathaway is losing the Buffett premium, having recently had a hit on valuation and a meaningful underperformance vs the S&P 500. Of course, I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second. In general, no stock can outperform all the time; some volatility has to be expected. Those which performed better earlier may not perform so better later; and vice versa.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any escalation would be negative for the markets.  

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long, (with the notable exception of France), while I still suggest putting together a portfolio that includes the yield of Italian Bonds and the safety of German Bunds, which are to be preferred in my view, given increased yields and reduced spreads. Are 80-90bps more worth swapping an AAA security for BBB+?  

There are three main headline risks to what is otherwise a constructive view for 2025: i) the US economy falling into a recession or revenue/earnings not matching forecasts; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan managed to reach new highs last week, also thanks to the trade agreement with the US. The devaluation of the JPY brought new shine to the local stock market, which has a more palatable valuation than its US counterpart. You still have to deal with a hawkish BOJ – although I would think that they would prefer to hold off hiking, given the current environment. But sooner or later, they will hike, as there is evidence of inflation in the country. I am now more positive on the country, although I would still hedge the JPY.

Portfolios

Finally, I want to introduce three portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 18.9% in about 1 3/4 years, with a Sharpe Ratio of 1.0

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 22.0% in about 1 3/4 years, with a Sharpe Ratio of 0.7. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR.

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 43.5% in about 1 1/2 years and has outperformed the FTSE MIB Index by 1400 bp in this timeframe, with a Sharpe Ratio of 1.6

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.