September Fed Rate Cut Is Probably a Lock as Job Growth Slows
The LPL Strategic & Tactical Asset Allocation Committee (STAAC) determines the firm’s investment outlook and asset allocation that helps define LPL Research’s investment models and overall strategic and tactical investment thinking and guidance. The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus. The STAAC meets weekly to closely monitor all global economic and capital markets conditions to ensure that all the latest information is being digested and incorporated into its investment thought.
Key changes from STAAC:
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Investment Takeaways
U.S. equities advanced in August, with the S&P 500 scoring multiple records en route to its fourth consecutive monthly advance. Stock market gains were fairly widespread, with small caps outperforming their larger counterparts as the Russell 2000 Index posted its best month since November 2024. August kicked off with Washington’s August 1 trade deal deadline spurring a snap-back in reciprocal tariffs on multiple trade partners (however, China received another 90-day delay), as well as much weaker than expected labor market data. Federal Reserve (Fed) rate cut expectations jumped, reinforced by more dovish-than expected remarks from Fed Chair Jerome Powell in Jackson Hole. In earnings, tariff cost pressures and a generally resilient consumer remained in focus. Plus, big tech bellwether NVIDIA (NVDA) beat and raised, although markets noted weak data center revenue.
U.S. Treasuries ended higher last month, with shorter-dated yields leading the move lower. Yields on two-year and five-year notes hovered near their lowest levels since May by month’s end, receiving downward pressure from bolstered Fed rate cut bets as a result of benign inflation, weak jobs data, and moves from the White House to build a dovish policymaking board. The yield curve ended with notable steepening as longer-dated yields hardly budged as duration failed to catch a bid across global bonds, sending 30-year yields in Germany, France, and Japan near multiyear highs. Domestic corporate credit ended higher in August.
Looking forward, investors may be well served by bracing for occasional bouts of volatility amid ongoing tariff uncertainty and a slowing economy. A pullback during the seasonally weak month of September after a 30% rally in five months would not be a surprise. But given the powerful AI trend, big tech’s significant earnings power, potential forthcoming Fed rate cuts, and the fiscal stimulus boost when 2026 begins, we believe pullbacks are likely to be shallow and bought.
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Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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