The bull market rages on, as the S&P 500 moved to another new high last week, the first in the month of September and 21st overall on the year.
This brings us to six of the first nine months of 2025 registering a new all-time high. Although we do have near-term potential worries over the coming weeks (as we have discussed the past several weeks), the reality is any weakness should be fairly contained and may provide a buying opportunity.
What a 100 Days
What a run it has been. Remember back in early April when the stock market was almost in a bear market and nearly every economist on TV was telling you how bad it was going to get and that a recession was near? Yeah, it seems almost comical now, but that is what we were consistently fed. Fortunately, the worst was once again avoided and stocks just had one of their best 100-day rallies in history.
The S&P 500 was up more than 28% the 100 trading days after the April 8 lows, which was one of the best 100-day rallies ever. As we noted many times back in the midst of the worst of the tariff-related meltdown, it is perfectly normal for the worst 100 days to take place right next to the best 100 days. Thankfully history played out once again and those that sold because of the volatility and scary headlines missed a golden opportunity.
But what now? We found 11 other times the S&P 500 was up more than 25% in 100 days (using the first signal in a cluster) and the future returns are very impressive. Never lower three months later suggests that any near-term seasonal weakness indeed shouldn’t be anything more than a buying opportunity, while a year later stocks were higher 10 out of those 11 times with a solid average and median return of about 13%.
About That Weak Breadth
One of the knocks we keep hearing about this bull market is that it’s being led by only a few stocks. The theory is this means the market is top heavy and due for a big correction. The only issue with this is it simply isn’t true.
We found that the average number of advancers on the New York Stock Exchange has actually increased each of the past three years (2023, 2024, and 2025 through August). in other words, more stocks have been advancing each of the past three years than have been declining, even as the drumbeat has gotten louder about how only a few large stocks are going higher. But don’t get confused between strength at the top and a lack of breadth. To us, this in fact is a healthy bull market with solid breadth.
The Labor Market Is Flashing a Big Red Warning Sign
The August payroll report was expected to be soft, but it didn’t even manage to meet low expectations. The bottom line is that the labor market is in trouble, but that cements expectations for a rate cut in September.
The economy created just 22,000 jobs in August but take that with heaps of salt—the number is going to be revised significantly (though it’s hard to predict in what direction). The revised estimates for June and July are slightly more reliable, and the news wasn’t good:
- July payrolls were revised up by 6,000: from +73,000 to +79,000
- June payrolls were revised down by 27,000: from +14,000 to -13,000
Anytime you get a month with negative payroll growth, that should be a big flashing red warning signal. Historically, that only happens near recessions. Even if you take the 3-month average, that’s only 29,000. For perspective, the 3-month average was 111,000 in March and 209,000 back in December 2024. We’ve seen a really sharp slowdown over the last few months, and it shouldn’t be a huge surprise given the tariff chaos in April and May.
Now, the economy likely doesn’t need to create as many jobs as it did last year to keep up with population growth, since immigration has stalled. But there’s no question that hiring is really weak, which is pushing the unemployment rate higher. The unemployment rate hit 4.32% in August—that’s historically low but it’s moving in the wrong direction and just hit the highest level since October 2021. The only plus in the payroll report is that the prime age employment-population ratio (which sort of controls for an aging population and labor force definitions) picked up to 80.7%. That’s higher than at any point in the 2000s and 2010s expansions. The fact that this is stable tells you that labor market weakness may be concentrated amongst young and older people, and usually the younger set starts to see trouble before everyone else.
Even Worse Under the Hood
From May through August (the post-Liberation Day phase), the economy created 107,000 jobs. But get this: the health care sector created 249,000 jobs. Without that, the economy would have lost 142,000 jobs over the last four months. The weakness is across the board in cyclical areas:
- Professional and business services lost 74,000 jobs.
- Manufacturing lost 42,000 jobs.
- Wholesale trade lost 31,000 jobs.
- Construction, which had been bit of a bright spot a few months ago, lost 8,000 jobs.
The government sector also lost 50,000 jobs over this period but there’s no way to sugarcoat the fact that there’s real weakness in the private sector. The tariffs have clearly taken a toll, which is why cyclical areas are struggling. There was softness even prior to May—manufacturing had lost 84,000 jobs over the twelve months through April 2025, likely due to elevated interest rates. But we’ve seen a collapse in recent months.
What Next? Expect Rate Cuts
The weak jobs report cements a rate cut in September and even raises the odds of a larger 0.50%-point cut (though this seems unlikely). In some ways, the situation over the summer mimics what we saw a year ago, when labor market weakness led to a big 0.50%-point cut by the Federal Reserve (Fed) at their September 2024 meeting, followed by two more 0.25%-point cuts in November and December. But there are two crucial differences:
- The policy rate was way more restrictive a year ago, at 5.4% versus 4.4% today.
- Inflation was coming down then whereas it’s heading in the wrong direction now (and remains well above the Fed’s target).
It’s clear that the Fed has an inflation problem. It would be one thing if all the heat was coming from durable goods, since you could argue that’s “transitory.” But there’s heat in services as well and it’s harder to brush that off as tariff related. Note that the Head of the President’s Council of Economic Advisors (and the president’s nominee to take the vacant seat on the Fed Board of Governors), Stephen Miran, has argued that tariffs are not the cause of inflation heat, but that would mean the Fed actually has an even bigger problem, as it would be harder to brush inflation off as a transitory “one off.”
What’s interesting is that investors are not only pricing a rate cut in September. Markets are pricing in three cuts in 2025 (for a total of 0.75%-points), and several more in 2026, taking the Fed policy rate from 4.4% to 2.8% by the end of 2026. This is way beyond what would be priced in if you just expected an “insurance” cut from the Fed (to protect the labor market). It looks like markets expect President Trump to get his people into the Fed by next year, and they well then push through the rate cuts he’s been asking for, although probably not as deep as the president’s social media-friendly talking points. But as mentioned above, this is in the face of inflation remaining above the Fed’s target and moving in the wrong direction.
So what will markets care more about, the downside from rising inflation risk or the upside from rate cuts? It does depend on which markets we’re talking about, but generally, the big problem with inflation isn’t when it builds up as much as the cost of bringing it back under control. In the near term, cuts mean lower borrowing costs, more liquidity in the system, and looser financial conditions. Add that to stimulus from the “One Big Better Bill Act” (offset partially by one of the largest Republican tax hikes in history via tariffs) and the on-going AI spend, and you have conditions for a market sugar high—if the labor market can avoid serious deterioration.
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