Goodbye and thank you to a legend: David Kostin will retire by the end of this year, replaced by Ben Snider. The Fed managed to find consensus around a 25bp cut, and plotted 2 more this year and 1 more in 2026, where much will change (including the Chairman). Equities higher, retail sales good: everyone is bracing to see if slowdown in employment will turn – or not – into a recession. Sundar Pichai, CEO of Google, sees AI’s best benefits in 10-20 years from now. Check this week for the update to the US’s GDP on Thursday, and the Fed’s favourite measure of inflation, the Core PCE Price Index, on Friday. We could be entering a more difficult and volatile market until early October and the 3Q25 earnings report, but so far it has been a strong September (unusually): all eyes on September’s labour report in October. 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 22nd – 26th September 2025

Economic data highlights of the week

Mon: CN – PBoC Loan Prime Rate (9/25)

Tue: JP – Holiday, UK BoE Governor Bailey Speaks, DE Manufacturing PMI (9/25), DE Services PMI (9/25), EU Manufacturing PMI (9/25), EU Services PMI (9/25), UK Manufacturing PMI (9/25), UK Services PMI (9/25), US Manufacturing PMI (9/25), US Services PMI (9/25), US Fed Chairman Powell Speaks,  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: ZA – Holiday, JP BoJ Core CPI, DE Ifo Business Climate Index (9/25)

Thu: JP BoJ Monetary Policy Meeting Minutes, CH SNB Interest Rate Decision, US GDP (2Q25), US Initial Jobless Claims, US Fed’s Balance Sheet

Fri: JP CPI (9/25), US Core PCE Price Index (8/25), CA GDP (7/25), US Atlanta Fed GDPNow (3Q25)

Performance Review

Source: Google

InflectionPoint reports:

* Last week, it was mostly about the Fed, which did not disappoint, as it deployed the first 25bp cut this year, and guided to 2 more cuts in 2025 and 1 more in 2026. So far, the market is embracing the forecast for this year better than the one from 2026, also because there will be a new chair from May onwards. It was perhaps remarkable that the only dissenter was Stephen Miran, the most recent appointment to the FOMC, who voted for a 50bp cut. So Chairman Powell managed to keep consensus in place at the US Central Bank; the most appropriate comment, by Bloomberg columnist, John Authers, was ‘the dog which didn’t bark’. The attention of the Fed, economists, strategists, and market pundits is on whether this perceived slowdown in available jobs will turn over into a recession or not. So far, so good, but if you’ve got a job, you’d better cling to it. Elsewhere, the equity rally continues, propelled by Fed cuts: even Chairman Powell did say that 25bp cannot do much, but it is the trajectory which matters (the so-called ‘dot plot’). Earnings continue to be good so far, and in three weeks’ time, we’ll see the reports; it is notable that current earnings before the report are holding up their own versus the most recent forecasts (it wasn’t so for 1Q25 and 2Q25). Furthermore, the economic forecasts continue to be good, and if there is no recession, rate cuts are equities’ best friend. President Trump has upped the ante in his quest to oust FOMC member Lisa Cook by going straight to the US Supreme Court, after an appeals court ruled that she can stay in her place for now. It is still very important that the independence of the Fed is preserved, as a guarantee of the US’s own credibility. Recent examples of rates being set by the government (such as in the UK in the 1990s) didn’t produce a great outcome. The President is hell bent to fire all those whom he perceives as enemies, but the US Central Bank, independent since 1951, is a delicate topic. Let’s see if he can impress markets again, just like when he appointed the team in his current administration. Returning to the economy, the most important data to watch will change: less inflation, more jobs. Therefore, the already crucial nonfarm payroll becomes the primary data point to track, with the weekly US Jobless Claims a close second, while also keeping an eye on JOLTs, which represents the number of available opportunities. 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. Italy’s rating was upgraded by Fitch to BBB+, while France was cut to A+, with the relative 10-year sovereign debt being separated by only 1bp. 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. Sundar Pichai is more bullish, thinking that we will see the real potential of AI in 10-20 years. As it has the ability to touch many more sectors than just communication, which was optical networking’s specialty, I think that the technology will be much more resilient and last for a longer period of time. 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 neck to neck, of which 3 this year and 2/3 next year. As long as these 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. The USD has lost a little last week, but is still trading above 1.17, after a market wave brought it well north of 1.18 during the week. And last but not least: chapeau, goodbye, and thank you for everything to a legend, as David Kostin will retire by the end of the year. He will be missed. 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, and we will get an update next Thursday. The current P/E ratio of 22.6x 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 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 that begins with a 2, but continue to diversify and use prudent risk management. 

*  The Federal Reserve made the first cut of the year in September, as widely forecasted, and reduced the rate to 4.00-4.25%. The lone dissenter, Stephen Miran, voted for a 50bp cut; Chairman Powell guided to 3 cuts this year (one more in October and in December). October now sees a 91.9% chance of a second 25bp cut, while the possibility of a jumbo cut has been ruled out. The forecast for December 2025 currently prices in the third cut of the year with a 78.6% chance, with rates at 3.50-3.75%, and once again, there’s no trace of the jumbo anymore. 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 2.75-3.25%, 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 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 4.14%, and were up last week, in line with most European government bond yields. 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 268.83 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. He has now acknowledged that his forecasts can be two-sided, showing a possible upside relative to when they were first made. 

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 3.3%, up from 3.1% last week, 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 2.10%, up from 2.08% 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. Introducing a forecast for 3Q25, with earnings expected to climb by 7.7%, compared with a forecast of 7.2% as of June 30th, and with revenues growing by 6.3% 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 Costco (Thursday, After Close).

Source: Earnings Whispers

Market Considerations

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

Source: NDR, 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, 25bp in 2025 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 Goldman Sachs, which highlights their current forecast for rates in 2026. Their terminal rate of 3.00-3.25% is matched by the current forecast by the CME FedWatch tool. The authors note that their forecasted path is a little more dovish than what is currently priced by the market, but based on the current assumptions, is absolutely credible, and excludes the more borderline 6th cut in 2026.  for year-end 2025 for the S&P 500 of 7000, with earnings and buybacks driving the climb. The second chart from NDR shows that after the Fed cuts with more of 6 months on hold, it projects a very constructive future for the S&P 500, as long as there is no recession.    

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 21.2% 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 26.5% in about 1 3/4 years, with a Sharpe Ratio of 0.8. 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 45.3% in about 1 1/2 years and has outperformed the FTSE MIB Index by 1540+ 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.