Market View: September-October 2025

By Argent Wealth Management, LLC on September 5, 2025

The July-August Market View noted that “the bull market is likely to continue… but a 5-7% type of correction before year-end would not be surprising.”

This remains the case. 

Ned Davis Research (NDR) did a study to look at what subsequently happens to the S&P 500 after it is up over 25% in 75 days.  This has happened only seven times since World War II (WWII), and the first time it happened post WWII was 1975.  On July 24, 2025 the S&P was up over 25% in 75 days.

Although it is a small sample size, it is meaningful because for instances after WWII, the S&P 500 was positive 100% of the time one year later by an average of 23.4%!

Strong returns tend to beget strong returns.  The S&P 500 is up slightly since July 24, implying there is more upside in this bull market if stock market history rhymes, which it tends to do.  The economic climate supports this thesis.

Economy, AI, and Markets

Credit conditions remain favorable and are trending upwards.  Businesses and individuals have access to credit to invest in projects or a home.  This would likely be in decline if a recession was imminent. 

Moreover, the Purchasing Manager Index, a historically accurate leading indicator for the economy, continues to move upward.  Over 75% of country PMIs around the world rose in the last month, and over 60% rose in the last year according to NDR as of July 31. 

Many pundits point to higher-than-average valuations as a reason the stock market should correct.  While valuations are not cheap, they are not expensive.  Moreover, the strength of corporate balance sheets relative to history is high.  This suggests companies deserve higher valuations in general.

Many of the strongest balance sheets reside in the tech sector.  While Artificial Intelligence (AI) is spoken about frequently in the media, the story still seems undervalued.  The media tends to point out the negative (which tends to keep our attention more than positive news does) like the potential for lost jobs. Frictional or short-term unemployment for some is possible but historically, technological innovation has not led to structural or long-term unemployment issues. 

There are three ways to grow an economy.  One way is population growth.  For most developed economies, this won’t add much growth and may even detract from growth.  The U.S. is in a better demographic situation than areas such as China, Japan, and Europe.

Another way to grow an economy is physical capital growth.  This includes roads, bridges, and general infrastructure spending.  This has diminishing returns.  The first train connecting California to the East Coast created mass amounts of efficiencies and opportunities.  Today, fixing bridges doesn’t really do much for economic growth.

The third way is human capital or technological advancement.  This does not have diminishing returns if humans keep innovating.  The train, the car, the computer, the internet, all made the economy more efficient, productive, and increased living standards overall (GDP Per Capita in economic terms).

AI is in the early innings.  It will permeate across all sectors of the economy.  Corporations, and individuals will use it more frequently to help make more efficient and effective decisions.  Like with the advent of the computer, many claim AI will take away jobs.  Also like the computer, while some may need to be retrained, AI will make for a more productive economy, thus helping it grow.  We remain in the early innings of an AI revolution that is part of a bigger technological revolution that started over 25 years ago.  This will continue to support the economy and growth for years to come. 

For this reason, the large technology companies with the strongest balance sheets and the most to invest in AI deserve higher valuations.  The technology sector in the S&P 500 is now close to 35%.  Adding Google, Meta, Tesla, and Amazon to the technology sector would bring this figure to just over 45%.  The total global stock market excluding the U.S. (using the iShares Core MSCI Total International Stock ETF, IXUS, as a proxy) has about 13.5% in technology stocks. This suggests that while the international market has outperformed the U.S. market year to date, long-term investors should continue to overweight U.S. relative to international stocks.

Fiscal Policy, Monetary Policy, Inflation, and Tariffs

Buttressing the economy is fiscal and monetary stimulus.  The July-August Market View highlighted the stimulative policies in the “Big Beautiful Bill.”  Here is a summary:

• An extension of the 2017 TCJA (Tax Cuts and Job Act).
• Deductions for tips and overtime pay.
• Reduces taxes on social security.
• A child tax credit increase.
• Manufacturing deductions for new U.S. manufacturing facilities, accelerated depreciation, and enhanced semiconductor tax credits.
• Various measures to invest in infrastructure and defense spending.
• Expansion of Oil and Gas production.
• Agricultural support.
• SALT deduction rose from $10,000 to $40,000 a year.

Meanwhile, the Fed is in an easing cycle.  Whether they cut once or twice this year, rates are on their way down.  Slow easing cycles tend to be positive for stock markets.  When the Fed isn’t in a hurry to cut rates, it implies the economy remains robust.  Although there are fears that tariffs may introduce some inflation, and they likely already have, it is a one-time adjustment, as pointed out by Powell in his Jackson Hole speech.  Specifically, he noted that the effects were “clearly visible” and effects would be “relatively short lived—a one-time shift in price level”. 

The Fed and Powell remain more focused on the level of unemployment.  While healthy, it isn’t likely to get much better, and the Fed would like to keep it low.  There remains about 1x the number of job openings per unemployed, a sign the job market remains healthy.  Investors should expect a slow easing cycle to continue, supporting stock prices.

With both fiscal and monetary policy supportive of stock markets, it is more likely than not that strong returns will be generated over the next year.  Currently, the 12-month change in the NDR Real Monetary, Fiscal, and Exchange Rate Policy index is at 24.7 percentage points.  When it is above 6, the S&P 500 is up 16.06% per annum.

While many fear that President Trump may do something rash with trade policy, it seems more likely he will take a country-by-country approach to negotiations.  With the 2026 mid-terms approaching, Trump is more likely to implement voter-friendly policies and avoid any policies that may be detrimental to markets.  The fear that Trump may do something outlandish is likely already reflected in stock market prices and in the general mood of investors.  If there was less uncertainty, stock markets may be up more than they are currently, and likely would not have suffered around a 20% pullback from February to April of this year.