Week in the Charts (9/23/25)

Look video of this post here.

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The most important charts and themes in markets and investing…

1) Return to Easing Mode

The Fed returned to easing mode last week by cutting interest rates by 25 bps to 4.00-4.25%. They have now lowered interest rates by 125 bps from September 2024, after one of the most aggressive rate hike cycles in history (525 bps increase in 2022-2023).

The big question ahead of this meeting: will the Fed lower its interest rate projections to meet market expectations, thereby showing a dovish bias?

For the rest of 2025: the answer is a clear yes. The Fed had predicted 2 interest rate cuts this year and they raised them to 3, in line with market expectations.

This means a 25 bps rate cut in October and another rate cut in December, which will lower the Fed Funds Rate to 3.50-3.75%.

However, in 2026, there is still a real gap, where the Fed estimates that it will only make 1 more interest rate cut (median dot plot of 3.4%) while the market estimates that it will make 2-3 more interest rate cuts (Fed Funds Rate below 3%).

2) What’s More Bullish: An Interest Rate Cut or An Interest Rate Hike?

The meltdown in equity markets continues after the Fed’s rate cut, with the S&P 500 notching its 28th all-time high this year.

There is a lot of excitement around the Fed cutting interest rates, with the implication that stocks will perform better when the Fed is in easing mode.

But is that actually the case?

Doesn’t match the data.

Over the following 6 months to 4 years, the S&P 500 has actually posted slightly below average returns after interest rate cuts compared to other typical days.

And here’s what’s really surprising: stocks actually perform better on average increase rather than tariffs cutting.

Why could this happen?

Because sometimes the Fed cuts interest rates in response to economic weakness, as we saw in 2001 and 2007. And those initial cuts were then followed by two of the worst market downturns in history, driving down historical returns.

The lesson: interest rate cuts are not always bullish, especially if they are accompanied by a recession.

3) Another Recession Warning from the Conference Board

Speaking of recession, The Conference Board’s Leading Economic Index is once again signaling a recession, after a series of failed warnings in 2022 and 2023.

Although the financial component of their index remained strong with equity and credit markets hitting new highs, non-financial components such as consumer expectations and ISM new orders were weak enough to drag down the overall index.

So, are we in a recession?

Not so according to the Atlanta Fed, which projects a real GDP annual growth rate of 3.3% in Q3.

And Polymarket’s chances of a recession continue to decline, dropping from 66% in early May to 6% now.

4) Is the Minor Breakout Finally Coming?

While the S&P 500 hit more than 80 all-time highs since the start of 2024, Small Caps are only in recovery mode, still recovering losses from the bear market in 2022.

That changed last week with the Russell 2000 Index hitting its first all-time high since November 2021.

With the outperformance of small cap stocks of late, we have seen a slight reversal in the ratio of large to small cap stocks which was at almost record highs a few months ago.

What could help this reversal continue?

Narrowing of the valuation gap between large and small companies, the widest on record. The large-cap S&P 500 trades at more than 22 times earnings vs. less than 16 times for the S&P 600 small-cap index. We haven’t seen a spread this big since 2001.

5) Animal Spirits Released

Risk appetite among investors continues to increase. Just some of the latest signs:

• The ratio of Consumer Staples (a defensive sector) to the S&P 500 is at its lowest level since 2000.

• Investment Grade credit spreads are at their tightest levels since 1998 (0.74%) and High Yield credit spreads are near their tightest levels since 2007 (2.69%). Both spreads are roughly half their historical averages.

• The S&P 500 CAPE ratio has exceeded 40 for the second time in history. The first occurred in January 1999. The figure continued to peak at 44 before turning sharply when the dot-com bubble burst.

6) Some Interesting Statistics…

a) Total money market fund assets have reached a record $7.7 trillion, has tripled in the last 8 years.

b) The 10% of people with the highest incomes in the US now account for nearly half of all consumer spending, a record high.

c) Only 25% of Americans say they have a good chance of improving their standard of living – the lowest figure since the survey began in 1987. And 3 in 4 don’t believe the next generation will be better off.

d) There are more 401(k) millionaires today than ever before, with Fidelity reporting 595,000 accounts above $1 million. That’s 20% more than last year and 102% more than three years ago.

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And that’s all for this week. Thanks for reading!

Every week I create a video detailing the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.