September begins with markets still supported by strong corporate earnings and resilient private-sector demand, but with a more complicated macro backdrop. Inflation remains above the Federal Reserve’s target, long-term Treasury yields are elevated, and geopolitical tensions have pushed oil prices higher just as investors prepare for a critical month of employment, inflation, and Federal Reserve data.
Our outlook for September is constructive but selective. We continue to favor quality, diversification, and disciplined portfolio construction over aggressive risk-taking.
Market performance
August was positive for U.S. equities despite weakness at month-end. The S&P 500 gained 2.6%, while the Nasdaq Composite rose 3.9%, both recording their strongest August performance since 2021. The S&P 500 finished August at 7,686.14 and is up approximately 12.3% year to date; the Nasdaq is up approximately 13.5% year to date.
The bond market remained considerably more subdued. The iShares Core U.S. Aggregate Bond ETF, which tracks the Bloomberg U.S. Aggregate Bond Index, ended August with a NAV of $97.37 and had a total return of approximately -0.13% year to date through August 28. Its 30-day SEC yield stood near 4.68%, illustrating that fixed income continues to offer materially more income than investors experienced during much of the previous decade.
The 10-year Treasury yield ended August near 4.75%, the highest level since early 2025, as higher oil prices and persistent inflation concerns pressured long-duration bonds.
Outlook for September
Historically, September has been a difficult month for equities, but seasonality alone is not an investment strategy. The current market remains technically strong and corporate earnings are providing meaningful support. The larger question is whether inflation and interest rates will begin to challenge valuations.
Second-quarter earnings have been exceptionally strong. FactSet reported blended S&P 500 earnings growth of 50.4% as of August 7, with 86% of reporting companies beating earnings estimates. Some of that growth reflects unusually large gains at a small number of companies, so investors should not assume that this rate of earnings growth is sustainable.
We expect September to be driven by three primary issues: the labor market, inflation, and the Federal Reserve. A combination of moderate employment growth and improving inflation would likely be favorable for both stocks and bonds. Conversely, stronger inflation or wage data could push Treasury yields higher and pressure valuation-sensitive areas of the equity market.
September economic calendar
- September 1: JOLTS job openings; ISM Manufacturing
- September 3: Revised productivity and unit labor costs; ISM Services
- September 4: August Employment Situation
- September 10: August Producer Price Index
- September 11: August Consumer Price Index and Real Earnings
- September 15–16: Federal Reserve FOMC meeting
- September 16: Import and Export Price Indexes
- September 29: August JOLTS
- September 30: Third estimate of Q2 GDP and August Personal Income & Outlays / PCE inflation
The Federal Reserve’s September 15–16 meeting will be especially important because policymakers will have received fresh employment, CPI, and PPI data before making their decision.
Inflation update
Inflation remains one of the primary portfolio risks.
July CPI increased 0.1% month over month and 3.4% year over year. Energy prices fell during July, helping contain the monthly headline reading.
The Federal Reserve’s preferred PCE price index increased 0.2% in July and 3.7% from one year earlier. Core PCE, which excludes food and energy, also increased 0.2% during the month and remained 3.3% higher year over year.
Those figures remain well above the Federal Reserve’s 2% objective. That makes the trajectory of energy prices particularly important following renewed conflict involving Iran and the Strait of Hormuz.
GDP and economic growth
The second estimate of second-quarter GDP showed that the U.S. economy grew at a 1.5% annualized rate, down from 2.1% during the first quarter. However, underlying private demand was considerably stronger: real final sales to private domestic purchasers increased 4.2% annualized.
Corporate profits also rose sharply during the quarter, while real gross domestic income increased 2.2%. The data suggest that headline GDP has slowed, but the private sector remains more resilient than the headline number alone implies.
CIO high-frequency dashboard
Labor market: Initial jobless claims fell to 203,000 for the week ended August 22, while continuing claims declined to just under 1.78 million. Hiring has slowed, but companies have not yet moved toward broad-based layoffs.
Consumer spending: Personal consumption expenditures increased 0.2% in July, but inflation-adjusted spending was essentially unchanged. The personal saving rate was only 3.0%, suggesting less cushion for households if employment conditions weaken.
Business activity: July ISM Manufacturing registered 55.6 and ISM Services 54.1, both consistent with expansion. However, prices-paid indexes remained elevated, highlighting ongoing inflation pressure.
Housing: Elevated mortgage rates continue to restrain transaction activity and new construction. Housing remains one of the clearest areas where restrictive financial conditions are affecting economic activity.
Credit markets: Corporate credit spreads remain relatively contained, which suggests credit markets are not currently signaling material recession or default concerns.
Yield curve: The 10-year Treasury yield near 4.75% provides an attractive nominal yield but also raises the discount rate applied to equities, particularly expensive growth stocks.
Financial conditions: Credit remains available and market liquidity has not deteriorated enough to suggest systemic financial stress. However, higher long-term yields are becoming a meaningful tightening mechanism even without additional Federal Reserve action.
Earnings: Corporate earnings remain one of the most supportive elements of the market backdrop. FactSet reported that 86% of S&P 500 companies reporting through August 7 beat EPS estimates, well above five- and ten-year averages.
Global developments
The most immediate geopolitical issue is the renewed escalation between the United States and Iran. Military action near the Strait of Hormuz pushed Brent crude back above $90 per barrel at the end of August. Higher oil prices could increase headline inflation, pressure consumer spending, raise transportation costs, and complicate Federal Reserve policy.
China also remains important to the global growth outlook. Manufacturing conditions remain uneven, while domestic demand and the property market continue to warrant attention.
Europe faces a different challenge: relatively subdued growth coupled with renewed energy-price sensitivity. Any sustained rise in global oil and natural-gas prices would have implications for European inflation and corporate margins.
Portfolio construction implications
- Quality equities: Favor companies with strong balance sheets, sustainable cash flow, pricing power, and durable earnings.
- Diversification: Maintain exposure beyond the largest technology companies despite continued AI-related opportunities.
- Fixed income: Short- and intermediate-duration investment-grade bonds remain attractive for income and diversification.
- Duration discipline: Longer-duration bonds may eventually benefit from slower economic growth, but elevated inflation and fiscal risk argue for selectivity.
- Liquidity: Maintain adequate liquidity to rebalance during periods of volatility.
- Risk management: Avoid overreacting to individual economic releases, geopolitical headlines, or short-term market moves.
Risks and opportunities
Key risks include renewed inflation, further increases in Treasury yields, geopolitical escalation, slowing employment, elevated equity valuations, and weaker consumer spending.
Key opportunities include strong corporate profitability, attractive fixed-income yields, continued AI and productivity-related capital investment, potential broadening of equity leadership, and the possibility that moderating growth eventually reduces pressure on long-term interest rates.
September outlook
The market enters September with a reasonably solid fundamental foundation but less room for disappointment. Earnings are strong, private-sector demand remains healthy, and layoffs remain low. At the same time, inflation remains elevated and long-term yields are increasingly competitive with equities.
For investors, we believe the appropriate response is not to predict every market move, but to maintain a disciplined allocation built around long-term objectives, diversification, quality, and thoughtful risk management.
Sincerely,
MRA Investment Committee
Frequently asked questions
How should I use a monthly market commentary?
Use it as a checkpoint, not a trading signal. A useful commentary can help you review whether your allocation, cash reserves, and investment assumptions still fit your goals, time horizon, and upcoming needs.
Does a changing outlook mean I should change my portfolio?
Not automatically. A change may justify a review, but an investment decision should consider your personal circumstances, taxes, liquidity needs, and the role each holding has in your plan before any action is taken.
What should investors review regularly?
Review the purpose of each account, upcoming cash needs, the amount of risk you are taking, concentration in individual holdings, and whether the allocation still reflects your goals. Major life, income, tax, or business changes are also good reasons to revisit the plan.
Related reading
This material is provided for informational and educational purposes only and should not be construed as individualized investment, tax, or legal advice. Investments involve risk, including possible loss of principal. Past performance does not guarantee future results. Economic and market forecasts are subject to change without notice.