Strong GDP in the past (2Q25 3.8%) and strong forecasts for 3Q25 lead a week of expanding breadth, with the AI trade taking a breather. Inline inflation (Core PCE Price Index) gives way to the Fed to continue its easing cycle. This week will see the September labour report and the JOLTS jobs openings data, with everyone bracing to see if the slowdown in employment will turn – or not – into a recession. We are a couple of weeks away from the very important 3Q25 earnings, whose forecasts are ahead of the average before the reports for the first time this year. The biggest tail risk is the US Economy falling into a recession (15% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, the Fed not delivering on its easing cycle, or a surge in long bond yields, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 29th September – 3rd October 2025

Economic data highlights of the week

Mon: SP CPI (9/25), US President Trump Speaks

Tue: CN Manufacturing PMI (9/25), AU RBA Interest Rate Decision, UK GBP (2Q25), DE Retail Sales (8/25), FR CPI (9/25), DE CPI (9/25), EU ECB President Lagarde Speaks, US JOLTS Job Openings (8/25), US CB Consumer Confidence (9/25) 

Wed: CN, HK – Holiday, IN RBI Interest Rate Decision, EU CPI (9/25), US ADP Nonfarm Employment Change (9/25), US ISM Manufacturing PMI (9/25), US Atlanta Fed GDPNow (3Q25)

Thu: IN, CN – Holiday, CH CPI (9/25), US Initial Jobless Claims, US Fed’s Balance Sheet

Fri: SK, CN – Holiday, EU Services PMI (9/25), UK Services PMI (9/25), EU ECB President Lagarde Speaks, EU PPI (8/25), US Nonfarm Payrolls (9/25), US Unemployment Rate (9/25), US Average Hourly Earnings (9/25), UK BOE Governor Bailey Speaks, US Services PMI (9/25)

Performance Review

Source: Google

InflectionPoint reports:

* Last week, it was a transitional period of time due to the pause in the AI-fueled rally. We got confirmation of strong economic growth, with the last reading of 2Q25 GDP at 3.8%, revised higher from 3.3%, and with the Core PCE Price Index, the Fed’s favourite measure of inflation, in line. This week will be crucial with the September labour report and the JOLTS Job Openings, as they will provide insight into whether there are any signs of softness in the labour market. The so-called ‘Goldilocks’ scenario – not too hot, not too cold – requires that there is a finely tuned balance between economic growth, unemployment, and interest rates (mostly coming down). A new report from Goldman Sachs’ Asset Allocation team sets new targets for the S&P 500: 6,800 over 3 months, 7,000 over 6 months, and finally 7,200 over 12 months. They are positive on US Equities and downgraded US Credit. They cited three risks: growth faltering/not meeting expectations (the main risk with such elevated valuations, and a reminder of 2000 when early lead tech companies’ market cap could be cut in half in one day if they missed their revenues), the Fed not being dovish enough (but how much is built into numbers anyway? and from next May there will be a new market-friendly chairman), and a continued depreciation of the dollar, forcing most foreign holders to reconsider their exposure to US assets. Interestingly enough, they do not mention any possible escalation of the geopolitical scenario, with the drones in European Territory getting me worried. Meanwhile, President Trump is continuing with his relentless tariffs and has also raised eyebrows about levying a hefty fee upon renewal of H-1B visas. September is almost over, and soon we will delve into October, with the 3Q25 earnings reports – and they better be good! 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. 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. 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, while it did cut in September as widely expected and signalled that it will cut 2 more times this year, Chairman Powell insisted that the FOMC is not on a pre-set course (and will be, once again, data dependent). 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. 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 gained a little last week, but is still trading above 1.17. 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 22.5x is above the average P/E ratio of the last 5 years at 19.9x and the 10-year average at 18.6x. 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 an 89.3% 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 68.2% 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 3.00-3.25%, hence with 2 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 stable last week, while most European government bond yields were flat or down. 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 267.65 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 3.8%, according to the third and final estimate released last week. The Atlanta Fed GDPNow model starts its forecast for 3Q25 in positive territory, with a current forecast of 3.9%, up from 3.5% last week, 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 2.55%, up 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. Introducing a forecast for 3Q25, with earnings expected to climb by 7.9%, compared with a forecast of 7.3% 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 10.8% 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 (August 2026) 24.43%. 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 Nike (Tuesday, After Close).

Source: Earnings Whispers

Market Considerations

Source: Fundstrat, ISABELNET.com

Source: Goldman Sachs Global Investment Research, ISABELNET.com

Source: Carson Investment Research, YCharts, ISABELNET.com

Source: Carson Investment Research, Professor Shiller Data, 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 10.8% (9.0% on June 30th), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.6% (6.3% on June 30th) and earnings to grow by 13.8% (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.  

Four highlights this week. First, we have a chart from Fundstrat, which studies the relationship between the S&P 500 and its 200-day moving average. They conclude that the index has room to grow, up to 6,950, when resistance from an elevated moving average would be strong. The second chart from Goldman Sachs analyzes market breadth, which has been improving in September. In fact, this is something I could also witness in the market, with the AI trade faltering, and some fatigue coming in the former leading names, which no longer could set new highs. The US Investment House argues that such an improvement is positive for the market and could see an extension of the current run. The third chart from Carson Investment Research tells us that in the fourth quarter, the market rose 80% of the time, with the best seasonal returns, on average of 4.2%. Finally, the fourth chart, again from Carson Investment Research, delves into the relationship between the S&P 500’s P/E and its performance 12 months later, concluding that valuations are bad for timing, and that investors look more at the big picture than at what’s happening at the moment. While that is true, valuations may offer support or be sensitive to slowing growth, and are helpful to let us know how quickly we are travelling.   

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 five main headline risks to what is otherwise a constructive view for 2025: i) revenue/earnings not matching forecasts, particularly in technology; 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); iv) a negative fed shock if it does not meet the market’s expectations on easing; and v) 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 the latest CPI was more benign than forecasts. There is a growing debate inside the bank between Governor Ueda, a dove, and some dissenters who have already pushed to increase rates. At the moment, it is possible that an increase could happen in October or in January. Let’s see what it does to the JPY and how much these expectations are already embedded in the currency. 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 21.6% 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 25.2% 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 45.5% in about 1 1/2 years and has outperformed the FTSE MIB Index by 1485+ 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.