The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are WSJ.com, Jeremy Siegel, Ph.D. (Jeremysiegel.com), Goldman Sachs, J.P. Morgan, Empirical Research Partners, Value Line, BlackRock, Ned Davis Research, First Trust, Citi research, and Nuveen.
IMPORTANT DISCLOSURE
Past performance may not be indicative of future results.
Different types of investments and wealth management strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.
Any forward-looking statements, information, and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain, and actual events or results may differ materially from those reflected in the newsletter.
Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.
A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel, and operations are available upon request.
Finding balance: Inflation eases, growth holds, and markets stay constructive
US economics, inflation, jobs and the Fed
The U.S. economy is exceeding prognostications according to Value Line. True, the gross domestic product (GDP) expanded by an estimated annualized rate of 1.6% during the first six months of this year, which was well below the 2024 full-year rate of 2.8%. However, the presumed negative impact of expanded tariffs on prices and the overall health of the economy has yet to materialize in a meaningful way. The current consensus calls for an annualized GDP advance north of 3.0% in the September quarter.
The inflation situation may be better than most think. As noted, the impact of tariffs on prices seems to be rather benign so far. Another positive development is the recent drop in oil and gas prices ahead of the winter heating season, aided by increased production both here and overseas. This makes it less expensive for companies to operate their businesses and for consumers to run their households.
Professor Siegel notes:
“The real economy continues to look good — neither overheating nor cracking. Weekly claims reconstructions by the banks point to the mid-220,000s, consistent with stable labor demand, and the S&P Global private-sector readings show no deterioration. Regional surveys are mixed, but that’s normal noise.
Importantly, housing isn’t falling off a cliff. Builder sentiment ticked up, and while overall activity is subdued, I do not see a recessionary downdraft coming from housing. The main headwind remains regulatory and zoning friction that constrains supply and keeps costs elevated; NIMBYism is still doing its damage. On rates, I told a real-estate audience last week not to anchor on 5% 30-year fixed rate mortgages; I expect the 10-year to stay roughly where it is, within about a quarter-point band, while short rates do the heavy lifting for lower adjustable mortgage rates.”
Meantime, the price of gold is up notably, year to date. Historically, such a move would suggest Wall Street is worried about inflation or a slowing economy. However, a good deal of the appreciation is likely due to China buying up the precious metal to diversify its foreign exchange reserves away from the U.S. dollar and reduce reliance on the greenback amid the global trade tensions.
Global economy
JP Morgan’s (JPM) forecast for resilience in global expansion has been premised on a number of factors, including a slow pass-through of tariffs in the US, the lack of a global retaliation in the US trade war, and a shift toward easier fiscal policies. The surprising strength in AI-related investments this year further adds to GDP while robust wealth gains, with as much as $8tn in equity gains accruing to US households this year alone, supporting consumer spending in a period of weakening job growth. The downsides remain considerable. Foremost is a sharp deceleration in hiring, while rising inflation in the US is further squeezing purchasing power and a crackdown on immigration is exacerbating pressures. On balance, JPM has flagged an elevated risk of 40% that something breaks in the US and a recession — or a period of very weak growth — takes hold. However, the latest data are not only reinforcing JPM baseline and challenging the bank’s sense of downside risk, they are also raising the possibility of outturns exceeding JPM forecasts.
The building upside risk in JPM forecasts is underscored by the latest business surveys. The bank’s PMIs are one of the timeliest signals of global economic activity, and their importance is made all the more so given the lack of US data at present. The dip in the PMIs in September threatened to be a harbinger of further losses in the coming months. Instead, the recent flash readings for October more than recovered the prior drop, with sizable gains in the US and Europe. At 53.7, the developed markets composite PMI is consistent with 2% annual rate GDP growth. While this is in line with the tracking for 3Q, it is twice the pace JPM projects for GDP growth in the current quarter.
Stock market
Corporate America is looking good. Third-quarter earnings season is off to a strong start, with the big money center banks and a number of industrial companies reporting healthy results. Too, the expectation coming into the season was that the technology companies would again exceed forecasts, aided by spending on artificial intelligence (AI) and cloud-based platforms. Not surprisingly, the earnings growth forecast for the S&P 500 companies continues to tick higher. There also is a growing consensus on Wall Street that double-digit profit growth is plausible in 2026, given favorable corporate tax policies and regulation rollbacks according to Value Line.
Professor Siegel reiterates as well:
“Earnings are the market’s engine right now, and they’re running very strong. Guidance is being maintained or raised, including out into 2026, even among firms that have explicitly tallied tariff costs. AI capex and deal activity remain robust, but the breadth story is improving beyond mega-cap tech. Autos just printed eye-catching results, and we’re seeing early signs of value participation. I’m not ready to declare a new regime for value over growth, but the underpinnings are better than they were six months ago. The VIX has eased from last week’s 20s but remains elevated enough to tell me positioning is still hedged and skeptical — this is not a blow-off environment. With earnings leadership intact and sentiment far from euphoric, I reiterate my view that the S&P 500 can press toward and over 7,000 as the policy pivot progresses and profits compound.”
While the concerns about the investments into AI infrastructure are valid, so far, the market believes they are justified. Goldman Sachs in their latest Market Monitor publication note:
The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are WSJ.com, Jeremy Siegel, Ph.D. (Jeremysiegel.com), Goldman Sachs, J.P. Morgan, Empirical Research Partners, Value Line, BlackRock, Ned Davis Research, First Trust, Citi research, and Nuveen.
IMPORTANT DISCLOSURE
Past performance may not be indicative of future results.
Different types of investments and wealth management strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.
Any forward-looking statements, information, and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain, and actual events or results may differ materially from those reflected in the newsletter.
Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.
A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel, and operations are available upon request.
LET'S GET ACQUAINTED