Market Insights Recap — Week of September 8, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital’s Private Bank.

Four out of five, sliding down slopes and more means less. Let's see what these things mean for our portfolios.

The media has focused on three big data points for the Fed: PCE inflation, payrolls and consumer price inflation. We would argue the Fed actually has five recent data points, and here are the first four: inflation — core personal consumption expenditures. That's a mouthful. The Fed's preferred inflation gauge hit 3% last month and is rising. Job openings are falling to their lowest level since before shutdowns. Jobless claims from layoffs are just starting to tick higher. Finally, August jobs were below estimates for the fourth straight month, netting only 22,000 new jobs. Three big reasons: tariffs trashing business confidence and causing businesses to sit on their hands. Government employment was the fastest growing sector in the prior administration, now contracting, and immigration issues. Now the household survey, where the unemployment rate comes from, that showed 288,000 new jobs. So a mixed bag on employment for the Fed to consider. But markets believe job growth is near stall speed, and they're calling for three rate cuts. That argues for more defensive allocations. Lower short-term rates from the Fed mean the yield curve is starting to steepen. 

Who likes lower short rates and longer rates? Home buyers and small cap stocks. We've said over and over that the Fed is always late to the party, whether it's cutting rates or raising rates, and we think any benefit from lower short-term rates in the next few months is going to be short lived. Inflation and excessive debt burdens mean longer-term rates are going up around the world. At this time next year, expect our long-term rates to be closer to 5%. 

Looking ahead, the stock bull market is still in place. Now, September into October is going to be bumpy, so keep that hard hat handy. Despite slowing job growth, consumers are continuing to spend and earnings estimates are holding steady. The Fed's fifth data point comes on the 11th, with the latest release of the Consumer Price Index. Core will be above 3%, so consumers continue to spend more but get less.

Wrapping it up, jobs weakness brought on by tariff uncertainty is going to give cover next week for the Fed to ignore inflation trends and go ahead and cut a quarter point. The markets want three quarter-point cuts by next April. The economy should be improving by then, and a stock rally should be in good shape. Hey, email me with questions at [email protected]; 'til next time.