Oracle’s blowout report projects a rosy outcome for AI for at least 2 more years to come; equities and bonds higher, with the Nikkei 225 setting a new, all-time record. Benign inflation data in the US puts the Fed into play with the first cut awaited this week; 2 more cuts in October and December. Strong economic forecasts, matched by earnings – so far so good – let’s check if a weakness in the labour market will become a headwind for the economy (Retail Sales). We are entering a more difficult and volatile market until early October and the 3Q25 earnings report. The biggest tail risk is the US Economy falling into a recession (15% 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 15th – 19th September 2025

Economic data highlights of the week

Mon: JP – Holiday,  (2Q25), CN Unemployment Rate (8/25), CN Industrial Production (8/25), CH PPI (8/25), EU ECB President Lagarde Speaks

Tue: UK Unemployment Rate (7/25), DE ZEW Economic Sentiment (9/25), US Retail Sales (8/25), CA CPI (8/25), US Industrial Production (8/25), US Atlanta Fed GDPNow (3Q25)

Wed: UK CPI (8/25), EU ECB President Lagarde Speaks, EU CPI (8/25), CA BOC Interest Rate Decision, US Fed Interest Rate Decision, US FOMC Economic Projections

Thu: EU ECB President Lagarde Speaks, UK BOE Interest Rate Decision, US Philly Fed Manufacturing Index, US Initial Jobless Claims, US Fed’s Balance Sheet

Fri: JP BOJ Interest Rate Decision, UK Retail Sales, DE PPI (8/25), CA Retail Sales (8/25) 

Sat: CN PBOC Loan Prime Rate (9/25)

Performance Review

Source: Google

InflectionPoint reports:

* We were waiting for the Oracle to speak – and indeed it has spoken. Projecting exponential growth in AI for at least 2 more years to come, the 30% bounce made its founder, Larry Ellison, the richest person in the world. We were also waiting to see the US CPI and the US PPI as a prelude for this week’s hot event, the Fed on Wednesday, and both were benign, giving the Fed’s easing cycle a green flag. The big question in the market at the moment is whether the perceived slowdown in employment will morph into a full-scale recession. The economic team at Goldman Sachs doesn’t think so and sees no recession in 2026. Also, David Kostin, in a post last week, while so far reiterating its targets of 6600 by year-end (we are almost there already) and 6900 12 months out, said that his forecasts for earnings are two-sided, meaning they can also be revised higher. Deutsche Bank last week revised its target for the end of the year to 7000, driven by a significant upgrade in earnings, which sees 2025 raised to $277 and 2026 to $315. Not even bottom-up earnings have risen by that much. The German bank also continues to expect valuations to remain elevated relative to historical standards. Noteworty was also the climb of Japan’s Nikkei 225 to a new record, after PM Ishiba resigned. In other news, a judge has ruled that President Trump cannot fire Fed Governor Lisa Cook while she battles his efforts to oust her, so the judicial process must take its course. FOMC member Christopher Waller, touted as the possible next Fed Chairman, has been vocal about an initial cut in September (25bp), with more to come later. Crazily enough (in my opinion), some market pundits have started to speculate about the need for a jumbo (50bp) cut by the Fed, as they see the deterioration in the labour market being more important than keeping inflation in check. As I always love to report, what the Fed will say next week will be more important than what they will do. Forecasts have completely changed, with the CME FedWatch tool now forecasting a 100% likelihood of a cut in September, and reopening the door to 3 cuts this year, matching the current Goldman Sachs forecast. We could be approaching a period of so-called Goldilocks, with the (US) economy still growing, and the Fed cutting rates – in 2023, such a scenario would have been of a no landing. While we are waiting for the next series of Emily in Paris, trouble is brewing in France, with the yield of the 10-year OAT being in sight of the yield of the 10-year BTP. (3.50% vs 3.55%). In all this, I see a problem. France’s sovereign debt is rated AA- (presently downgraded by Fitch to A+; S&P will update its rating in November) ; Italy’s is rated BBB+ (all ratings by Standard & Poor’s). Clearly, the market is voting with its feet and not paying much attention to the ratings; hence, it is clear that ratings often change when there’s not much to be saved. This is one of the reasons why I still prefer German Bunds for balanced portfolios, as you have the best risk-free rate you can get with an asset that does not flinch in times of crisis. 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. 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 5/6 cuts, of which 3 this year and 2/3 next year. As long as these 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 that is entirely possible, I think it will be unlikely, unless 3Q25 results were to disappoint. The USD has gained a little last week, but is still trading 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 22.5x 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 think that we have seen the lows in 2025, leaving room to grow, back to those targets that were floated at the beginning of the year, and 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 August labour report last Friday. We will see a cut in September then (100%),  with a 6.6% chance of a jumbo cut (which I feel would be more bad than good, restarting the spectrum of a recession). October now sees a 79.0% chance of a second 25bp cut, with the jumbo at 5.5%. The forecast for December 2025 currently prices in 3 cuts with a chance of 5.1% for the jumbo, with rates at 3.50-3.75%. 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 marginally sees rates at 2.75-3.00%, hence with 2/3 more cuts during the next year. 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) later this year. There have been a lot of discussions on whether the ECB will cut again this year; I personally believe they will have one more cut by December 31. 

* Yields on US 10-year Treasuries have reached 4.06%, and were slightly down last week, while most European government bond yields rose. 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. We seem to be getting there, although I cannot yet recommend the US Debt on their public spending plans. The 2025 S&P 500 bottom-up earnings estimate has continued its strong bounce to 268.74 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 concern that a slowdown may be imminent, so let’s closely monitor both the GDP estimates and the earnings estimates for 3Q25, as well as any data that can assess the spending power of the US Consumer, such as retail sales. 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 3.1%, up from 3.0% last week, but still accounting for some terrific growth, and as usual, ahead of the Blue Chips consensus, which is currently around 1.3%, starting to move upwards. The New York Fed’s Nowcast model has a current forecast of 2.08%, down from 2.10% 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 12.0%, 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 7.6%, compared with a forecast of 7.2% as of June 30th, and with revenues growing by 6.2% vs 4.8% as of June 30th. For 2025, earnings growth is forecasted at 10.7% vs 9.0% as of June 30th, with revenues coming in at 6.1% 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 15% chance of a recession in the next 12 months.

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. Highlights include FedEx (Thursday, After Close).

Source: Earnings Whispers

Market Considerations

Source: Bloomberg Finance LP, Deutsche Bank Asset Allocation, ISABELNET.com

Source: FactSet, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Goldman Sachs Global Investment Research, ISABELNET.com

Source: FactSet, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Haver Analytics, Datastream, Worldscope, Goldman Sachs Global Investment Research, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 6.1% (5.0% on June 30th), and earnings growth estimates for 2025 are predicted to grow by 10.7% (9.0% on June 30th), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.5% (6.3% on June 30th) and earnings to grow by 13.7% (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.  

Five highlights this week. First, we have a chart from Deutsche Bank, which highlights their current target for year-end 2025 for the S&P 500 of 7000, with earnings and buybacks driving the climb. The second chart from Goldman Sachs shows how much has the use of cash changed in the era of AI. Capex has skyrocketed and R&D has increased over previous years. The third chart, again from Goldman Sachs, shows that according to their models the current multiple is close to fair value, as explained in the fourth chart, which shows current ROEs relative to their historic past. Higher ROEs, for both the US and the World, may command a premium to historic valuation, the American Investment Bank concludes. Finally, the fifth chart, shows that the probability of being in a recession in 12 months currently implied by the market is not too far away from what is currently forecasted.   

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 who performed better earlier may not perform so well 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 focuses on 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 a 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. 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 20.9% in about 1 3/4 years, with a Sharpe Ratio of 1.1

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

Our Global Income and Growth Portfolio is up 24.2% 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 47.0% in about 1 1/2 years and has outperformed the FTSE MIB Index by 1635+ 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 want 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.