Weekly Recap:

by Eric Criscuolo and Michael Reinking, CFA

Published on 10/03/25

This week marked the end of September and the start of the fourth quarter. As the great Dave Johnson would say, “And Down the Stretch They Come!!!” If you never heard him, check out his 2006 Kentucky Derby call when Barbaro won.    

September has historically been the weakest month of the year - down an average of 2% over the past 10 years. We bucked that trend this year though, with the S&P up 3.5% (see table below). This was actually the second year in a row of solid September gains, so maybe we’re starting a new trend. The S&P 500 is up 14% YTD.  It was up over 20% the past two years.  October and November have been strong months for the market historically.  Can we make it a 20% Trifecta this year? If the AI bid continues to lift multiple sectors higher with every deca-billion spending announcement and thematic narratives continue to work all while the Fed greases the rate cut gears? So you’re telling me there’s a chance…

Tech was a big driver as the sector gained 7% in the month. The ICE Semiconductor Index rose 11%. Communication Services- mainly Alphabet - Utilities, and Consumer Discretionary were outperforming sectors. Discretionary was a mixed bag though. A big part of the gain was from Tesla, which was up over 30%. On the other hand, many of the travel, leisure and restaurant stocks fell 2-10%.  As far as underperformers, Materials and Consumer Staples lagged.  Chemicals stocks were under pressure while retailers, food and beverage stocks brought the Staples sector lower.

As for the third quarter, the S&P 500 was up 8%, but the small cap-focused Russell 2000 did even better, up 12%.  The re-starting of the Fed’s rate cutting cycle was a big driver for that outperformance. Another small cap index, the S&P 600, which only includes companies that meet a profitability threshold, was up 9%. The delta between the R2K and the 600 highlights the movement into riskier parts of the market, as we saw sharp rallies in some of the popular thematic trades like nuclear, quantum computing and digital asset treasury companies during Q3. Another beneficiary of this was the Biotech group. The ICE Biotech index outperformed the ICE Semi index despite a late charge from the later.

Now, lets turn our attention to this week. The federal government closed if you hadn’t heard. So far  that has had limited impact on markets. It was widely expected and it’s happened before. It causes some marginal downside to certain sectors, but the biggest effect, outside of the toll it takes on lives of government workers, is on the publication of economic data. We’re seeing more delays in that than in a Long Island traffic report. Weekly jobless claims and the monthly non-farm payroll report both went unpublished due to the shutdown, as did most other federal government-sourced reports. Assuming this shutdown continues, a lot more economic data will be delayed.   

Despite all of that the S&P went on to post another batch of record highs, as did the Dow and the Russell 2000. You know what else set records and shut things down? NY Yankees flamethrower Cam Schlittler, who became the first pitcher in MLB history to pitch at least 8 scoreless innings and strike out at least 12 batters without walking anyone. On to Canada to face the Blue Jays!

The S&P 500 rose every day this week (just barely on Friday). Thursday’s Open proved to be the day’s high and on Friday the index pulled back after an attempt at 6750. At the Closing Bell on Friday the S&P was up 1% for the week. The equal-weight outperformed, as did small caps, in a sign of healthy breadth supporting the continued move higher. However, the index is at its most extended from the 200-day average this year (+11%) and hasn’t closed below it since May 9. April 30 was the last day closing below the 50-day.

Healthcare is easily the best performing sector this week. The XLV rose 7%. That strength was triggered by significant news flow from Pfizer’s announcements with the White House around drug pricing (especially the Most Favored Nation framework) as well as US R&D and manufacturing investments. The NYSE Pharma Index (DRG) jumped 10%. LLY, AZN, PFE, MRK, SNY, BIIB all rose at least 10%. Other areas like CROs and Tools also jumped. The XBI biotech ETF is attacking the $103 level that’s been heavy area of resistance since early last year. The sector’s significant underperformance this year and last year had made the idea of a catch-up trade a possibility but it never materialized for a host of reasons. If this gets the sector out from under the administration’s microscope there could be more room to run. Utilities outperformed, benefiting from lower rates, M&A (GIP for AES) and a constant flow of datacenter investment news. Tech was also a leader, with semis strong- MU was a standout, up 20%. Memory chips supplanted GPUs in the headlines following OpenAI’s agreements with Samsung and SK Hynix. Speaking of OpenAI they completed an employee share sale that values the company at $500 billion.  FICO ripped higher following its deal to allow mortgage lenders to buy FICO scores for mortgage seekers direct from the company, rather than going through the credit bureaus. Palantir got hit Friday on news an internal US Army memo noted weakness in the company’s communications and networking technology. Palantir responded and said those issues have been addressed.

Materials were middle-of-the-pack but mining stocks were mostly higher across commodities, led by lithium miners and Lithium Americas' deal with the US government. Coal (BTU +30%), copper (FCX +12%), and steel (CLF, STLD, MT +3%) names were also strong. Energy was the lagging sector this week as oil prices continued to fall. Concerns over supply gluts and OPEC production increases are weighing on the commodity. Meta, and to a lesser extent Alphabet, led Comm Services lower.

Financials lagged this week as well as rates have moved lower. Some recent consumer-focused bankruptcies (First Brands, Tricolor) are churning up some concerns in consumer credit. COF, SYF and AXP were down 3-4%. Private equity/private credit names (APO, KKR, BX, OWL) were down 3-10%. IPO delays from the shutdown are also not helping the sector.

Among the more thematic and higher risk groups, Quantum computing names were sharply with several up over 20%. Nuclear names were mostly higher (OKLO, NNE, CEG +10%). Most Digital Treasury Companies were modestly to sharply higher.

While federal data is on the shelf, data from private sources is unaffected. The ADP Employment and Challenger job cuts reports both continued the storyline of a labor market slowdown. The ADP report was especially weak and took the 2y down fell 8bp on Wednesday.   

M&A continues to a big driver and Blackrock’s GIP segment is doing more than its part. After the group was reported to be close to a deal for utility AES for around $38B (including assuming about $30B of debt), another report had the group in talks to acquire Aligned Data Centers for ~$40B. Berkshire confirmed it was is buying Occidental’s OxyChem business for $10B. The US government continued to be in deal mode as well and got one in before the shutdown when the DOE announced it was taking a 5% stake in Lithium America Corp. The administration has also said it’s looking to do a lot more of these types of deals across industries. USA Rare Earth shot higher after the company’s CEO said her company was in close discussions with the White House.   

The government shutdown has left the MAC Desk feeling a bit void today. The first Friday of the month is always an important one for equity markets, with the release of the BLS employment report. Despite the fact that the report has drawn quite a bit of criticism recently and circularly caused the federal hiring line to be reduced by at least 1 job in August, when President Trump fired the head of the BLS, it still is the north star of economic data. This leaves investors and policy makers flying or sailing blind at a time when the economy is going through a transition. One of the “positive” implications of the government shutdown is that our economic data section will become much shorter but thanks to some private sector data not until next week.

The last piece of government produced economic data before the shutdown was the JOLTS Job Openings which were essentially unchanged from last month at 7.2M. Both total hirings and separations ticked down slightly versus last month. Construction openings were markedly lower, falling 115k versus last month for the biggest openings decline. However, hirings increased 22K and quits snapped back towards June levels after falling sharply last month. The industry is getting a lot of attention in these updates as we look for signs of economic slowdown. Construction quits are expected to decrease when economic activity decreases as workers aren’t sure of getting new/better paying jobs. Accommodation and Food Services saw the largest increase in openings (+106k), as well as the largest decline in quits (-140k), though it also saw a 50k decline in hirings. Government hiring was unchanged while openings fell 37k and layoffs rose slightly. One metric that we pay close attention to is the layoffs and discharges as a percentage of total nonfarm payroll employees which is still at historically low levels, not suggesting that the labor market is deteriorating rapidly. 

With the lack of today’s employment report the ADP Employment Report took on some added importance. It showed the economy lost 32k jobs in September and after doing its annual preliminary rebenchmarking last month’s number was revised to 11k from 54k. Job losses were most prominent in small (-40k) and medium (-20k) sized firms while large companies added 33k jobs. The pay data remained tame with pay for job stayers ticking up to 4.5% but moderating to 6.6% from 7.1% for job changers.

The other private data was the survey data. The Conference Board Consumer Confidence Index declined from last month, with Present Situations falling more than Expectations. According to the report, “The present situation component registered its largest drop in a year… their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low…Consumers were a bit more pessimistic about future job availability and future business conditions but optimism about future income increased, mitigating the overall decline in the Expectations Index.”  

The ISM survey showed the manufacturing sector remained in contraction for the seventh straight month, but the numbers were up a touch from last month. The underlying data was mixed. New orders fell back into contraction after a 1-month reprieve while new export orders accelerated to the downside. Employment showed some modest improvement while prices moderated. The commentary in the respondents section is pretty negative with the prevailing themes uncertainty and tariffs weighing on activity.

This morning’s ISM services survey fell to 50 the demarcation line of growth. New orders fell sharply but remained in expansionary territory.  Inventories and imports both fell sharply. Employment ticked up modestly but overall remained weak. Prices continued to move higher. 

The survey data has a whiff of stagflation, but the Case Shiller Home prices provide an offset on the inflation side of the equation. Keep in mind this data is quite delayed. In July the national home price index continued to moderate up 1.7% on a y/y basis, tracking below overall inflation levels. The other recent housing data suggests a pick up in activity during August as yields moved lower so we’ll need to keep an eye on next month’s report. 

The steady flow of Fed commentary continued throughout this week but has largely turned into background noise as the varying opinions on the Committee are publicly aired. Overall that commentary seems to carry a somewhat more hawkish or really cautious tone about further easing than the current market narrative. The duration of the government shutdown will determine whether or not the Committee has another round of data to digest before its decision about four weeks time. For the time being this dynamic and the totality of this week’s data seems to have cemented the view that the Federal Reserve will be cutting rates at its next two meetings with the probability for two cuts by year end up to ~85% from ~65% at the end of last week. 

Treasury yields were down ~5bps across the curve, reversing much of last week's move higher. The ICE BofA MOVE index continues to drift lower breaking below 70 for the first time since May of last year.

The calendar was going to be pretty light even before the shutdown put all the federal data on the backburner. The calendar below assumes all data comes out but that's not likely. The minutes to the last FOMC meeting are scheduled for Wednesday and the University of Michigan sentiment report is set for Friday. The next CPI print is in two weeks, Oct. 15, so there’s still hope for that one. OPEC will meet over the weekend, with reports suggesting another increase in production. Oil has been weak heading into the meeting. Probably most importantly the 2025-2026 NHL regular season starts on Tuesday. Lets Go Islanders (Sorry Lynn).   

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