Week of September 29, 2025

Key Points for the Week

• Stocks fell slightly last week.
• The fourth quarter is historically strong.
• Profit growth continues to be the main driver of stock returns.
• Profit growth, and GDP, have been boosted by massive AI spending.

• AI investment has been led by large profitable companies and not heavily dependent on debt.

  Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

Last week, revised economic figures showed the United States economy grew faster from April through June than previously thought. The upward revision was primarily due to a revised estimate for consumer spending over the period, according to Connor Smith of Barron's.

“American consumers, the engine of the world's largest economy, have remained resilient in the face of tariffs and economic uncertainty...The continued strength in spending, which has defied worries about a slowdown, is in contrast to recent data showing a weakening labor market...But initial claims for unemployment insurance fell last week to their lowest level since July...in a sign that the jobs market might not be in as dire shape as other data have suggested.”

Danielle Kay, the BBC

The contrast between consumer spending and consumer sentiment was striking. Consumer sentiment moved lower again in September and is down more than 21 percent this year, according to the University of Michigan's Consumer Sentiment Survey.

“Nationally, not only did macroeconomic expectations fall, particularly for labor markets and business conditions, but personal expectations did as well, with a softening outlook for [consumers'] own incomes and personal finances. Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year.”

Joanne Hsu, Surveys of Consumers Director

The inflation picture did not improve in August. Prices, as measured by the personal consumption expenditures price index, were up 2.7 percent year over year. When volatile food and energy prices were excluded, prices rose 2.9 percent year over year. Both measures are well above the Federal Reserve's two percent inflation target.

Last week, major U.S. stock indexes rallied on Friday, but were not able to recoup losses from earlier in the week, reported Sean Conlon of CNBC. Yields moved higher over the week for all but the longest maturities of U.S. Treasuries.

This Week in the Markets

"By many measures, for example, equity prices are fairly highly valued."

Jerome Powell, Federal Reserve Chair

That recent comment by Fed Chair Jerome Powell helped spark the recent three-day selloff in equities. No, it wasn't just that comment alone, but those words did add some worry for investors.

Powell isn’t the only one thinking this though, as the recent Bank of America Global Fund Manager Survey showed that a record 58% of respondents viewed global equity markets as “overvalued.”

The comments reminded many of us of Alan Greenspan's now infamous ‘irrational exuberance' speech on December 5, 1996. All the S&P 500 did after that was double over the next three years, with the tech-heavy Nasdaq doubling several times into early 2000. Yes, stocks crashed soon after, but still, this famous quote from John Maynard Keynes is relevant today: “Markets can remain irrational longer than you can remain solvent.”

Earnings drive long-term stock gains and those are still quite strong. Here's the latest S&P 500 earnings estimate from FactSet. Forward earnings are no more predictive than valuations, but they provide a powerful fundamental reason why markets have been advancing.

In Case You Wondered Why Stocks Were Back Near All-Time Highs Factset S&P 500 Annual Bottom Up EPS Actual And Estimates

Valuations are not the best timing tool. As a matter of fact, they're not a timing tool at all and the data has backed that up, as we show below. Back in 2014, all we heard was how Robert Shiller's cyclically adjusted price-to-earnings ratio (“CAPE”) was extremely pricey, and doom was coming.

Trust me, anyone with even a small bearish inclination was talking about it, and they were worried that stocks were going to perform poorly over the next decade.

Some even called it “The New Normal,” which meant to expect lower than average returns. Heck, Bill Gross (aka the Bond King) said several years earlier in 2012 that “the cult of equity is dying,” although I guess we shouldn't be too frightened when a bond guy criticizes stocks. And he couldn't have been more wrong—instead all we've seen is one of the greatest decades ever for stock investors.

Do valuations matter? Well, going out one year the answer is a resounding no, as the r-squared (the statistic that measures how much one variable helps explain another) between the price-to-earnings ratio (“PE”) and S&P 500 performance a year later is 0.00. In other words, there has been no relationship between valuations and S&P 500 returns over the next year. Yes, if you go out further (say five or 10 years) you will find more explanatory power. Still, if you were a bull back in the mid-2010s it is hard not to remember how wrong those bears have been the past 10 years, so by no means is a ‘high' valuation by itself a reason to avoid equities.

Valuations Are Not Good Timing Tools Scatter Plot Returns Of P/E Multiples And S&P 500 1-Year Returns

The fourth quarter is historically quite strong and when stocks are doing well going into it, it has done even better. This quarter is historically higher 80% of the time and up an impressive 4.2% on average. Both are the best of the four quarters of the year.

The Fourth Quarter Is Here S&P 500 Index Average Quarterly Returns (1950 - 2024)

When the S&P 500 hits a new high in September (like it has done eight times this year), the fourth quarter has been higher nearly 91% of the time (20 out of 22 times) and when the S&P 500 is up more than 10% year to date heading into the fourth quarter, the last quarter of the year has been green 14 out of the past 15 times.

Secondly, the S&P 500 is about to close up five consecutive months. It turns out five-month win streaks are historically quite bullish for continued strength. In fact, the S&P 500 has gained a year later after a five-month win streak an incredible 28 out of 30 times.

Year-to-date returns for the S&P 500 have mostly been driven by profits. The S&P 500's forward 12-month earnings per share (EPS) is currently at $292, up almost 8% from the start of the year. As you can see in the chart below, there's been no let-up in market expectations of profit growth over the last few months. The line keeps going up and to the right, which is why stocks are going up and to the right.

Forward earnings expectations still rising S&P 500 Index - Next 12 Month Earnings Per Share

This also raises the question as to whether there's a “profit bubble.” The key question is really what's driving profits, and from an aggregate macro perspective, a big driver is investment spending, assuming consumer savings and government deficits don't change (though rising fiscal deficits have also boosted aggregate profits recently).

The idea with investment driving profit growth is that one company's spending (or investment) is another company's income (and profit). Right now, there's a lot of investment, albeit focused on a particular area: artificial intelligence (AI). The investment, or capital expenditures (capex), in this space is enormous, and is even having a big impact on GDP growth despite being a relatively small part of the overall economy. In fact, over the first half of 2025, AI-related spending (hardware and software) contributed an average of 1.0% point to GDP growth. That's more than the contribution of 0.6% points from consumer spending, which makes up close to 70% of the economy.

Cash-rich tech companies are going on a capex spending spree, providing a crucial boost to the economy, and that does not look like it's ending soon. And it's also providing a big boost to the profits of these large tech companies. Some examples:

• Nvidia just committed to spending $100 billion on OpenAI to supply it with data center chips, as well as $5 billion in Intel.
• OpenAI is also expected to buy $300 billion in computing power from Oracle over five years.
• CoreWeave signed a 5-year deal with OpenAI worth $11.9 billion.
• Google struck a 6-year cloud computing deal with Meta worth over $10 billion.
• Amazon made another $4 billion investment into OpenAI competitor Anthropic (which makes the AI tool “Claude”), doubling their investment.
• "Stargate", a joint venture between OpenAI, Oracle, and SoftBank, is expected to invest $500 billion in data centers over the next several years.

This AI-related infrastructure boom is larger than what we saw during the telecom and broadband buildout in the late 1990s, and about as large as the railroad boom back in late 1800s. With the railroad boom, the companies built too many lines too fast, creating duplicate capacity. These sat idle for a while (hence the crash after the boom) but eventually became useful once again as the economy expanded. With the telecom boom, companies laid a lot more fiber optic cables than was needed back then (and so these companies lost money), but this “dark fiber” became useful in later years, especially after all of us started streaming cat videos on YouTube and later spent evenings at home watching Netflix. The pattern we've seen has been:

• A massive capex boom
• Overbuilding
• A shake-out, leading to a crash
• Long-term benefit

The question right now is whether the current generation of data centers will actually lead to a long-term benefit. One big difference is that the lifespan of this AI infrastructure is much shorter than say railroads and broadband fiber optic cables—datacenters that are deployed with the latest, most sophisticated chips (which are used to train AI models and provide responses to our AI prompts) are likely going to be near obsolete in 3-4 years as chip technology advances. The depreciation of these assets happens much faster, in contrast to what we saw with railroads or telecom. (“Moore's Law,” first stated in 1965, noted that the number of transistors in an integrated circuit had been doubling about every two years. That observation has continued to hold roughly true the last 60 years.)

Another difference is that there are only a handful of players are involved in the current AI boom, since only these large companies have the funds and scale to operate at these levels. In fact, that also gets to the fact that these companies are enormously profitable and have cashflows from other business lines (ads for Google and Meta, and cloud storage for Microsoft and Amazon). So, this is not being driven by debt and levered balance sheets, at least not yet. With the railroads and telecom there were a lot more players, and more widespread vulnerability—land grants and government subsidies boosted the railroad boom while deregulation (including the 1996 Telecom Act) spurred competition and capital spending in telecom in the late 1990s.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state's attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver's license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

Did you Know? This Week in History

October 1, 1958: American Express Launches its First Credit Card

On October 1, 1958, the American Express Company issued its first charge card in the U.S. and Canada to give traveling customers more flexibility. The purple paperboard card—which later becomes the iconic green or gold plastic card—pre-dated a new era of paying for purchases with revolving credit cards, with MasterCard and Visa following years later.

With the American Express card, users could purchase airline, steamship and cruise tickets, with one caveat: They had to pay back the balance in full every month. By the time the new card launched, American Express had issued 250,000 cards, and 17,500 businesses had signed on to accept them. Then, in May of 1959, American Express issued the first plastic charge card.

Before entering the charge card business, American Express began in 1850 as a freight-forwarding company, formed through the consolidation of three companies involved. The business gained trust among customers while transporting some of their most valuable possessions. By 1862—during the Civil War—American Express had 890 offices, more than 1,500 employees, and nearly 10,000 miles of railway and express routes in the northeast and Midwest. In 1891, American Express introduced the Travelers Cheque to help customers traveling internationally feel more secure with their money. In 1915, the company started offering customers travel services.

Today, American Express issues credit cards, processes payments and provides travel services worldwide.

Weekly Focus

“Every difference of opinion is not a difference of principle.”

L,Thomas Jefferson, 3rd President of the United States

"Worrying does not empty tomorrow of its sorrow; it empties today of its strength.”

I,Corrie ten Boom, Dutch Writer