Weekly Market Update – September 26, 2025

Quick Takes

• Wall Street snapped a three-week win streak last week, as sentiment took a hit after positive economic data and perceived hawkish remarks from Federal Reserve speakers had investors dialing back their expectations for interest rate cuts.
• Economic data was generally stronger than expected, particularly the final report of second quarter GDP, which showed US economic growth at +3.8%, up from the prior estimate of +3.3%. The upward revision was driven primarily from increased consumer spending.
• For the week, the benchmark S&P 500 Index slipped -0.3%, the small cap Russell 2000 Index fell -0.6%, and the tech-heavy Nasdaq Composite Index retreated -0.7%. On the bond side, the Bloomberg U.S. Aggregate Bond Index returned -0.3% and the Bloomberg Global Aggregate ex U.S. Bond Index (non-U.S. bonds) returned -0.8%.

Source: Bloomberg. Data as of September 26, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Stocks and Bonds Stall on Too Much Good News

As strong and broad as the risk-on the global asset rally was two weeks ago, last week was almost uniformly risk-off for global assets. Stocks and bonds, in the US and abroad, retreated with most major stock indices breaking three week win streaks. Ironically, the culprit for the sell-off was a case of too much good news. Economic data was largely positive and better-than-expected. With economic growth showing surprising strength, combined with more inflation data coming in on the mild side, investors had to rein in their hopes for more interest rate cuts. It didn’t help that comments from several Federal Reserve speakers during the week were, on balance, on the hawkish side, further souring interest rate cut expectations. Speaking Tuesday, Fed Chair Jerome Powell noted that the economy is in a “challenging situation” due to near-term upside inflation risks and downside labor market risks, while also acknowledging that “equity prices are fairly highly valued.” How much did rate cut expectations get dialed back? According to the CME FedWatch Tool, the odds of two quarter-point cuts by the end of the year fell from 82% before last week to about 60% at the end of the week. 

As discussed in the Chart of the Week section below, the third and final estimate of second quarter Gross Domestic Product (GDP) was a big contributor to the interest rate reset. The US economy grew at +3.8%, which is a half-point better than the prior +3.3% estimate. Importantly, the upward revision was driven by increased consumer spending. Higher rates mean investors are generally less willing to pay higher multiples for stocks. Meanwhile, the Fed’s preferred inflation gauge—the Core Personal Consumption Expenditures (PCE) Price Index—increased to 2.9% year-over-year in August, in line with estimates and the same annual pace from the prior month.

For the week, the benchmark S&P 500 Index slipped -0.3%, the small cap Russell 2000 Index declined -0.6%, and the tech-heavy Nasdaq Composite Index retreated -0.7%. International equities were negative as well. The MSCI EAFE Index (developed market non-U.S. stocks) edged down -0.4% after falling -0.2% the prior week. The MSCI Emerging Markets Index underperformed the EAFE, falling -1.1% for the week after rising +1.4% the previous week. Non-US stocks were hampered by gains in the US Dollar Index, which was up +0.5% last week. 

U.S. Treasuries also generated negative returns, with short– and intermediate-term yields increasing and long-term yields ending unchanged (bond prices and yields move in opposite directions). Rate cut expectations declined amid the week’s generally stronger-than-expected economic data and hawkish Fed commentary. The 10-year yield ended the week up +5 basis points (bps) at 4.18% after rising +6 bps the prior week. The 2-year Treasury yield rose +7 bps to 3.64% after an increase of +2 bps the week before. The Bloomberg U.S. Aggregate Bond Index returned -0.3% for the week following a -0.2% drop the prior week. The Bloomberg Global Aggregate ex U.S. Bond Index (non-U.S. bonds) returned -0.8% after two flat weeks.

Chart of the Week

The U.S. economy expanded more than originally estimated in the second quarter of 2025. The third and final estimate of real Gross Domestic Product (GDP) for Q2 2025 was revised higher to +3.8% from the previous estimate of +3.3% on August 27, which itself was revised higher than the initial estimate of +3.0% released on July 30. Wall Street was expecting it to remain at the prior estimate of +3.1%. Stronger than previously reported consumer spending spurred the upside surprise, as well as business investment from capital expenditures (capex) for Artificial Intelligence (AI). Consumer spending, measured by Personal Consumption Expenditures (PCE), is the main engine of the economy, and it increased +2.5% versus the second estimate of +1.6% and just +0.6% in the first quarter. The PCE component contributed +1.68 percentage points to real GDP growth in the second quarter. Net exports added +4.83 percentage points to growth in 2Q, as imports sank -29.3% while exports fell -1.8%, revised lower from -1.3% in the prior estimate. Government Spending fell -0.1% versus -0.02% from the prior estimate and is down from +0.6% in the first quarter. The Personal Saving Rate increased to +5.3%, up from 5.2% in the first quarter. The GDP Price Index (GDP Price Deflator) was revised higher to +2.1% from the second estimate of +2.0% and is down from +3.4% in the first quarter. The bottom line from the report is that the US economy showed much stronger growth in the second quarter than the prior two estimates indicated, and it did so with minimal inflation.

The Latest GDP Revision Shows the Economy Had a Strong Spring

Gross Domestic Product (GDP), change from a quarter earlier

Source: Commerce Department, The Wall Street Journal.
Note: Seasonally and inflation-adjusted at annual rates; the third estimate of 3.8% was revised upward from a
second estimate of 3.3% and an initial estimate of 3.0%.

The Week Ahead

The economic calendar is quite full this week, but the biggest report isn’t set until Friday morning when the Bureau of Labor Statistics (BLS) releases the September Employment Situation Report… assuming Congress can mitigate a government shutdown, the BLS is open for business (Tuesday night is the deadline for Congress to strike a new agreement to fund the federal government). Besides the jobs report on Friday, housing data will be prevalent this week with Pending Home Sales on Monday, Home Price Indices on Tuesday, Construction Spending and Mortgage Applications on Wednesday, and Existing Home Sales on Thursday. Purchase Managers Indices (PMIs) from S&P Global and the Institute for Supply Management (ISM) will be a focus on Wednesday (manufacturing PMIs) and Friday (services PMI). 

Did You Know?

“NO RECESSION” CONFIRMED – On prediction-markets platform Polymarket, odds of the US entering a recession in 2025 began the year at 18% and peaked at 65% on April 8, but they hit a year-to-date low of 5% on September 17 after the Atlanta Fed’s GDPNow forecast for Q3 GDP growth came in at +3.3%. (Sources: Polymarket, Atlanta Fed)

TOP-HEAVY SPENDING – The top 10% of wage-earners in the US now spend about the same as the bottom 90%. In Q2, the top 10% of wage-earners accounted for a record-high 49.2% of total consumer spending, up from 43.2% at the end of 2019, just before COVID, and 37.3% in 1995 (30 years ago). (Source: Bloomberg)

NEVER SELL – A recent homeowner survey found that 61% of Baby Boomers plan to never sell their homes (up from 54% in 2024), and just 10% plan to sell within the next five years. More than 40% of boomers surveyed consider not owning a home a sign of failure, and 65% of boomers said younger generations could own a home if they were more responsible. (Source: HousingWire).

This Week in History

INAUGURAL SECRETARY – On September 26, 1789, George Washington appointed Thomas Jefferson the first Secretary of State of the United States. (Source: The Wall Street Journal)

Economic Review

• The cost of goods and services rose +0.3% in August, matching expectations and up a tick from the prior month’s +0.2% (unrevised). For the year, the Personal Consumption Expenditure (PCE) Deflator (aka PCE Price Index) was up +2.7%, in line with expectations and up a tick from the prior month’s +2.6% (unrevised). The Core PCE Price Index, which excludes food and energy and is the Fed’s preferred inflation gauge, was up +0.2% for the month, also matching expectations and unchanged from the prior month (after being revised down from +0.3%). Year-over-year, the Core-PCE Price Index was up +2.9%, unchanged and unrevised from the prior month. 
• Personal Spending jumped +0.6% in August, the best since March and above expectations for a +0.5% uptick, which is where it was the prior month (unrevised). After adjusting for inflation, Real Personal Spending was +0.4% for the month, beating expectations for +0.2% and matching the prior month after it was revised up from +0.3%. Personal Income increased +0.4%, unchanged from the prior month (unrevised) and ahead of expectations for +0.3%. Real Disposable Income was up +0.1% month-over-month, and up +1.9% year-over-year. The Personal Savings Rate was +4.6%, down from +4.8%. The solid income and spending results show the economy is still on a growth trajectory.
• The preliminary “flash” S&P Global U.S. Composite Purchasing Managers Index (PMI) showed economic activity softer in September, slipping to 53.6 from 54.6 the month before. That was a tad below Wall Street expectations for 54.0. The Manufacturing PMI fell to 52.0 from 53.0 the prior month, in line with expectations. Meanwhile, the Services PMI slipped to 53.9 from 54.5 the prior month. That was a tick below expectations for a decline to 54.0. The service side of the economy — such as retailers, banks, and hospitals — employs most Americans and has driven the expansion since the pandemic. The S&P Global “flash” PMI surveys are among the first indicators of each month to give a sense of how well the U.S. economy is doing. Despite the mostly softer survey results across both manufacturing and services, businesses’ expectations for output over the next 12 months improved to the highest level in four months. “While growth was again seen across both manufacturing and service sectors, both categories reported weakened expansions, leading to slower hiring in both cases,” said Chris Williamson, chief business economist of S&P Global.
• The Commerce Department reported Durable Goods Orders for long-lasting items such as televisions, appliances, and transportation equipment rose +2.9% in August, primarily because of aircraft orders. Wall Street was expecting a -0.3% decline, and it follows an upwardly revised -2.7% drop the prior month. Durable Goods Orders Excluding Transportation were up +0.4%, above expectations for a +0.0% reading and down from the prior month’s unrevised +1.0% level. More impressive, the important Core Capital Goods Orders (capital goods excluding volatile sectors like transportation and defense), a proxy for business spending, rose +0.6%, well above expectations for a flat reading and down slightly from the +0.8% rise the prior month (revised down from +1.1%). Core Capital Goods Shipments, which are factored into GDP, declined -0.3%, missing expectations for a +0.3% gain and up from the +0.6% reading the month before (revised down from +0.7%). The bottom line from the report is that business spending (nondefense capital goods orders, excluding aircraft) jumped +0.6% on the heels of a strong +0.8% increase in July.
• The Federal Reserve Bank of Chicago reported that U.S. economic activity was cooling again in August, although the Chicago Fed National Activity Index (CFNAI) did improve to -0.12 from -0.28 the prior month (which was revised sharply lower from the originally reported -0.19). That was better than Wall Street expectations for a reading of -0.15. Readings below zero indicate below-trend growth in the national economic activity. Three of the four broad categories of indicators used to construct the index increased from the prior month, but all four made negative contributions. The Production and Income category improved to -0.02, up from -0.17 the prior month. The Employment, Unemployment, and Hours category contributed -0.07, a slight improvement from -0.10 the prior month. The Personal Consumption and Housing category declined to -0.03, falling into negative territory from +0.02. The Sales, Orders, and Inventories category contribution was neutral (0.00), up from -0.02 from the prior month. Overall breadth of the index worsened with 27 of the 85 individual indicators making positive contributions, while 58 made negative contributions. Improvements in the individual indicators were little changed, with 43 indicators improving, up a tick from 42 the prior month. Of the improving indicators, 21 made negative contributions. The CFNAI three-month moving average increased to -0.18 from -0.20 the prior month. During the last 20 years, there has been a 91% correlation between the three-month index level and the quarterly change in real GDP. The bottom line is that August reinforced the narrative of a cooling US economy, but the rate of the slowdown was slower than the prior month and better than consensus expectations.
• The final reading of the August University of Michigan Consumer Sentiment Index dipped to 55.1 from the preliminary reading of 55.4 two weeks ago, where it was expected to stay. That is down from 58.2 the prior month. In the same period a year ago, the index stood at 70.1. The Current Economic Conditions component dipped to 60.4 from the preliminary reading of 61.2 and is down from 61.7 the prior month. The Consumer Expectations component fell to 51.7 from the initial estimate of 51.8 and from the prior month’s final reading of 55.9. One-year inflation expectations slid down to 4.7% from the preliminary reading of +4.8%, which is where it was the previous month. The five-year inflation expectations declined to 3.7% from the +3.9% preliminary reading but up from +3.5% the prior month.
• The Kansas City Fed Manufacturing Survey improved to +4 in September from +1 in August, above expectations to come in at +2. The Production index increased to +4 from 0, while Shipments ticked up to +7 from +6, but New Orders slipped to +2 from +5. Employment strengthened with the Number of Employees jumping to +7 from 0, while the Average Employee Workweek remained at +3. The Prices Paid index declined to +40 from +43 while the Prices Received index fell to +13 from +21. 
• The Richmond Fed Manufacturing Survey weakened to -17 from an unrevised -7 the prior month. That was much worse than expectations for an improvement to -5. All three component indexes decreased, moving further into contraction territory. The New Orders components fell to -15 from -6, and the Shipments component dropped to -20 from -5. The Employment index decreased to -15 from -11. After surging in August, Prices Paid inched lower in September. The Richmond Fed Service Sector Survey also fell, dropping into contraction territory at -7 from an unrevised +8 the prior month.
• The Commerce Department reported New Home Sales were expected to slip modestly (-0.3% to 650,000 units) last month, but instead they surged +20.5% to 800,000 units, the strongest pace since January 2022. That compares to a -1.8% drop to 664,000 units the prior month (which was revised sharply lower from the originally reported -0.6% decline to 652,000 units). New Home Sales data tend to be volatile month-on-month and are often revised. New Home Sales remain far below the recent peak of over 1 million units in August 2020, but are running above the pre-pandemic average of 600,000. Year-over-year, sales of new homes were up +15.4% following a -8.2% annual rate the prior month. By region, for the month, sales jumped +72.2% in the Northeast, +24.7% in the South, +12.7% in the Midwest, and +5.6% in the West. The Median New Home Price increased +1.9% to $413,500 from the prior year, which was only the second month this year that prices have fallen on an annual basis. The months of supply at the current rate of sales was 7.4, down from 9.2 the prior month. The key takeaway from the report is that the pace of sales surged ahead of the larger drop in mortgage rates seen in September, including a notable jump in homes sold over $800,000—which helps explain the large jump in average selling prices. 
• The National Association of Realtors (NAR) reported that Existing Home Sales dipped -0.2% in August to a seasonally adjusted annual rate of 4.00 million units, above expectations for a -2.5% drop to 3.95 million units but down from the +2.0% increase of 4.01 million units reported the prior month (unrevised). Year-over-year existing sales were up +1.8%, up from the +0.8% annual rate the prior month. The Median Existing Home Price increased to $422,600. Year-over-year, home prices were up +2.0% compared to a +0.2% annual rate the prior month. That broke seven consecutive months of slowing annual price changes. The Inventory of Homes for Sale decreased -1.3% from the prior month to 1.53 million units. Unsold Inventory sits at a 4.6-month supply, unchanged from the previous month. This still lags the 6.0-month supply typically associated with a more balanced market. Homes Listed for Sale remained on the market for 28 days on average, up from 24 days the previous year. First-Time Buyers were 28% of sales in the month, unchanged from the month before. Historically, these buyers make up closer to 40% of home sales, but affordability has been hit hard in the last two years due to fast-rising home prices and higher mortgage rates. All-Cash Sales fell to 28% of transactions from 31% the prior month. For the month, sales increased +2.1% in the Midwest and +1.4% in the West but fell -4.0% in the Northeast and -1.1% in the South.
• Weekly MBA Mortgage Applications were up +0.6% for the week ending September 19, after surging +29.7% the prior week. The Purchase Index was up a modest +0.3% after gaining +2.9% the prior week. The Refinance Index rose +0.8% after rocketing +57.7% the prior week. The average 30-Year Mortgage Rate slipped to 6.34% from 6.39% the prior week, the lowest since October 4, 2024.
• Weekly Initial Jobless Claims fell -14,000 to 218,000 for the week ending September 20, better than expectations for 233,0000. The prior week was revised up +1,000 to 232,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) was down -2,000 to 1,926,000 for the week ending September 13 after the prior week’s reading was revised higher by +8,000. That was better than expectations for 1,932,000.

Asset Class Performance

Source: Bloomberg.
Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (Vanguard Total International Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 24% US Bonds, 10% International Bonds, 6% High Yield Bonds, 13.8% Large Growth, 13.8% Large Value, 3.6% Mid Growth, 3.6% Mid Value, 1.2% Small Growth, 1.2% Small Value, 16.8% International Stock, 4.2% Emerging Markets, 1.8% Real Estate.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.