The Week in Charts (9/23/25)

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This Week’s post is sponsored by YCharts.

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The most important charts and themes in markets and investing…

1) Back to Easing Mode

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

The big question heading into the meeting: would the Fed lower their interest rate projections to meet market expectations, revealing a dovish bias?

For the remainder of 2025: the answer was a clear yes. The Fed had been forecasting 2 rate cuts for this year and they moved that up to 3, matching the market’s expectations.

That would mean a 25 bps rate cut in October and another one in December, bringing the Fed Funds Rate down to 3.50-3.75%.

But for 2026, there remains a noticeable gap, with the Fed forecasting just 1 additional rate cut (3.4% median dot plot) while the market is pricing in 2-3 more cuts (Fed Funds Rate below 3%).

2) What’s More Bullish: Rate Cuts or Rate Hikes?

The melt-up in equity markets continued after the Fed’s rate cut, with the S&P 500 recording its 28th all-time high of the year.

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

But is that actually the case?

Not according to the data.

Over the subsequent 6 months through 4 years, the S&P 500 has actually posted slightly below average returns following rate cuts versus any random day.

And here’s the real shocker: stocks have actually performed better on average following rate hikes than rate cuts.

Why would that be the case?

Because sometimes the Fed is cutting rates in response to economic weakness, as we saw in 2001 and and 2007. And those initial cuts back then were followed by two of the worst bear markets in history, bringing down the historical returns.

The lesson: rate cuts aren’t always bullish, especially when they’re 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 string of failed warnings in 2022 and 2023.

While the financial components of their index remain strong with equity and credit markets hitting new highs, the non-financial components like consumer expectations and ISM new orders were weak enough to pull the overall index down.

So are we in a recession?

Not according to the Atlanta Fed, who is projecting a 3.3% real GDP annualized growth rate in Q3.

And the recession odds on Polymarket continue to drift lower, moving from 66% in early May down to 6% today.

4) Is the Small Cap Breakout Finally Here?

While the S&P 500 was hitting over 80 all-time highs since the start of 2024, Small Caps were simply in recovery mode, still clawing back the losses from the 2022 bear market.

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

With small caps outperforming of late, we’ve seen a slight reversal in the ratio of large to small which nearly hit a record high a few months back.

What would help this reversal continue?

A narrowing in the valuation gap between large and small companies, which is near the widest on record. The large cap S&P 500 is trading at over 22 times forward earnings vs. less than 16 times for the S&P 600 small cap index. We haven’t seen a spread this wide since 2001.

5) Animal Spirits Unleashed

Risk appetite among investors continues to increase. Just a few 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 level since 1998 (0.74%) and High Yield credit spreads are near their tightest level since 2007 (2.69%). Both spreads are at roughly half their historical averages.

• The S&P 500’s CAPE Ratio has crossed above 40 for only the second time in history. The first was in January 1999. It would go on to peak at 44 before reversing sharply during the bursting of the dot-com bubble.

6) A Few Interesting Stats…

a) Total assets in money market funds have hit a record $7.7 trillion, tripling over the last 8 years.

b) The top 10% of income earners 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 since surveys began in 1987. And 3 out of 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 a year ago and 102% more than three years ago.

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

Every week I do a video breaking down 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 disclosures here.

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