Hello everyone,
This month feels a bit like Vegas—uncertain but rewarding. While we've been cautious since Liberation Day, recent months have brought positive surprises for portfolios. September has particularly benefited investors, with S&P500 up 1.14% month to date and the TSX rising by 4.38%.
The question, that now lies with many, is will the dice keep rolling in our favour? While I'm not a fortune teller, there doesn't seem to be any pending doom on the horizon so I'm going to go out on a limb and say sure! Lol. Here's why. Reflecting back, the data has been supportive of a bullish market. Examining the aggregate results of company earnings for the second quarter of 2025, it generally shows positive performance across various sectors. For example, 81% of S&P 500 companies reported positive earnings per share and revenue surprises, with a blended earnings growth rate of approximately 11.8% (https://www.factset.com/earningsinsight).
Examples would be the Expedia Group who experienced a 5% increase in gross bookings and 6% revenue growth (https://www.expediagroup.com/investors/news-and-events/financial-releases/news/news-details/2025/Expedia-Group-Reports-Second-Quarter-2025-Results/default.aspx). The Home Depot reported stable net earnings of $4.6 billion (https://corporate.homedepot.com/news/earnings/home-depot-announces-second-quarter-fiscal-2025-earnings) and Lowe’s achieved a diluted EPS of $4.27 with a 1.1% increase in comparable sales (https://corporate.lowes.com/newsroom/press-releases/lowes-reports-second-quarter-2025-sales-and-earnings-results-08-20-25). Additionally, Rocket Companies reported total revenue of $1.36 billion and a GAAP net income of $34 million (https://ir.rocketcompanies.com/news-and-events/press-releases/press-release-details/2025/Rocket-Companies-Announces-Second-Quarter-2025-Results/default.aspx). All this to say, profits and earnings were surprisingly impressive and show no signs of slowing down.
TD Asset Management estimates that the One Big Beautiful Bill Act may raise S&P 500 companies' Free Cash Flow by 9% in 2025 and 2026, mainly from expensing R&D and structural investments. Following the trend of the 2017 Tax Cuts & Jobs Act, most benefits are expected to go to shareholders via buybacks and dividends, likely supporting equity prices.
Lastly and looking more broadly based, the Federal Reserve lowered interest rates by 25bps in September; primarily in response to emerging economic headwinds, including signs of a faltering labor market and a general slowdown in economic activity. Despite persistent concerns about inflation, the Federal Open Market Committee (FOMC) decided that the risks posed by a cooling job market and other economic factors warranted a reduction in the federal funds rate to support economic growth. This move was described as a shift toward a series of modest rate cuts, signaling an intent to carefully balance between managing inflation and supporting employment. The decision was largely supported by the Committee, with an 11-to-1 vote, underscoring broad agreement on the need for easing monetary policy given the changing economic landscape. (https://www.federalreserve.gov/newsevents/pressreleases/monetary20250917a.htm' https://www.cnbc.com/2025/09/17/fed-rate-decision-september-2025.html, https://www.cbsnews.com/news/federal-reserve-fomc-meeting-today-rate-cut-september-2025-powell-impact/, https://www.wsj.com/economy/central-banking/fed-cuts-rates-by-quarter-point-and-signals-more-are-likely-dba38600).
The said above sounds like an oxymoron, doesn't it? But a cooling job market reduces inflation risk, allowing the Fed to cut interest rates. These rate cuts make funding cheaper, encourages investments, and signals a supportive policy environment. Together, they create conditions that investors interpret as bullish, leading to higher stock prices and improved market sentiment.
This theme not only is present here at home, but the global economy is expected to grow modestly as well, with forecasts around 3.0% to 3.3% for 2025, showing a slight upward revision from earlier in the year. This growth momentum is supported, again, by declining inflation. This should allow central banks to ease restrictive monetary policies, including anticipated rate cuts by major central banks, providing some tailwinds for markets (https://www.imf.org/en/Publications/WEO/Issues/2025/07/29/world-economic-outlook-update-july-2025, https://www.jpmorgan.com/insights/global-research/outlook/mid-year-outlook, https://am.jpmorgan.com/au/en/asset-management/adv/insights/market-insights/market-outlook-2025/).
Looking further, emerging markets are expected to see slower growth at about a 2.4% annualized rate in the second half of 2025, but central banks in these regions are also likely to continue cutting rates to stimulate their economies. Overall, while volatility and uncertainty remain risks, most major investment institutions maintain a cautiously positive stance for market returns in the near term (https://www.jpmorgan.com/insights/global-research/outlook/mid-year-outlook, https://www.schwab.com/learn/story/stock-market-outlook).
For next month, October has long been viewed as a volatile month for stock markets, noted for historic fluctuations such as the 1929 and 1987 crashes. In bullish market conditions, however, October often yields positive returns as investors react to third-quarter earnings and prepare portfolios for year-end. The month can also serve as a precursor to the "Santa Claus Rally," with momentum sometimes building in late October. Historically, during bull markets, October typically delivers modest gains or moves sideways as investors reassess after summer, as seen following the 2008-2009 financial crisis. Broader influences like macroeconomic trends, earnings results, and geopolitical events shape October's performance; when these factors are favourable, the month generally supports the ongoing upward market trend.
Navigating these shifting sands, investors must weigh opportunity against uncertainty—a familiar gamble, yet one that rewards both vigilance and adaptability. The interplay of robust corporate earnings, supportive policy maneuvers, and gradually improving macroeconomic indicators paint an alluring but complex landscape. While the headline numbers inspire confidence, it’s prudent to remember the underlying currents: regulatory changes, geopolitical tensions, and sector-specific headwinds could swiftly alter the market’s trajectory.
For portfolio managers and individual investors alike, the emerging environment calls for a balanced approach. Diversification remains paramount; allocating to a mix of equities, fixed income, and alternative assets can help cushion against volatility. Watching fiscal developments and monetary policy signals will be key, as central banks continue to walk a tightrope between growth and stability.
Ultimately, the path forward is not linear, dang! There will be moments of exuberance and caution, surges, and retreats - much like the bright lights and sudden turns of Vegas itself. Those willing to adapt swiftly, keep their eyes on economic data, and adjust their strategies in real time are best positioned to thrive as the fourth quarter unfolds and beyond.
In short, let's keep playing and set aside some spare change for an extra try. LOL.
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