Backup in Rates Amid Mixed Fed Rhetoric Weighs on the Market

Performance for Week Ending 9.26.2025:

The Dow Jones Industrial Average (Dow) finished down 0.2 percent, the Standard & Poor’s 500 Index (S&P 500) lost 0.3 percent, and the Nasdaq Composite Index (Nasdaq) finished off 0.7 percent. Sector breadth was mixed, with five of the S&P sector groups closing higher and six closing lower. The energy sector (4.7 percent) was the best performer, while communication services (-2.7 percent) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 9.22.2025 – 9.26.2025

The S&P 500 ended lower last week, breaking a three-week winning streak, reflecting a backup in Treasury yields and mixed messaging from Federal Reserve (Fed) members. Treasury yields rose following a batch of solid economic data, which in turn, raised concerns that the Fed may not cut rates as quickly or to the degree that the market has been expecting.

Fed Speak: In remarks to the Greater Providence Chamber of Commerce in Rhode Island, Fed Chair Powell reiterated that “two-sided risks mean that there is no risk-free path.” Powell added the outlooks for the labor market and inflation face risks, reiterating his view that policymakers likely have a difficult road ahead as they weigh further interest rate cuts. “Near-term risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation,” Later, in a question-and-answer session, Powell addressed the equity market noting that ”by many measures, for example, equity prices are fairly highly valued.” Fed Governor Miran said interest rates are too high and made a case for lowering them aggressively in the coming months to protect the labor market. Atlanta Fed President Bostic said inflation concerns would make him hesitant for now to declare support for cutting rates again in October, even though economic risks have shifted in recent months toward greater worries about employment. St. Louis Fed President Musalem said he supported the recent reduction in interest-rates as a way to take out insurance against a weakening labor market but sees limited room for more cuts amid elevated inflation. Cleveland Fed President Hammack said she remains laser-focused on inflation and officials should be cautious about interest rate cuts to avoid overheating the economy. Chicago Fed President Goolsbee said the U.S. central bank should be cautious toward additional interest-rate reductions given inflation is above its target and on an upward trajectory. Fed Governor Bowman said policymakers are in danger of falling behind the curve and need to act decisively to bring down interest rates as the labor market weakens.

Economic Roundup: The U.S. manufacturing and services sectors grew less than expected in September, according to S&P Global's U.S. Flash PMI reading. Jobless claims unexpectedly fell to 218,000 in the week that ended Sept. 20 from 232,000 the previous week, according to data from the Department of Labor released. Data from the Bureau of Economic Analysis showed the U.S. economy grew at its fastest pace since 2023 in the second quarter. Real gross domestic product (GDP) increased at an annual rate of 3.8 percent, a dramatic rebound from the 0.6 percent drop in the first quarter. Meanwhile, sales of existing homes were nearly flat in August, the latest sign that high prices and limited mortgage rate relief are keeping prospective homebuyers sidelined for now. New home sales jumped 20.5 percent to a seasonally adjusted annualized rate of 800,000 units last month, the highest level since January 2022 and the biggest increase since August 2022. The annual rate of growth by the PCE price index ticked up to 2.7 percent in August from 2.6 percent in July, which was in line with estimates. Excluding food and energy prices, the annual rate of growth by the core PCE price index came in at 2.9 percent in August, unchanged from July and also in line with expectations.

The Week Ahead: The risk of a U.S. government shutdown on Wednesday will be a key focus for the market this week. There has been little breakthrough between Republicans and Democrats on the issue, and the Republicans need at least some Democratic support, given the need for 60 votes in the Senate to avoid a filibuster. The perceived probability of a shutdown has been rising, with the odds on Polymarket as of Friday climbing to 85 percent. On the data calendar the focal point will be the September jobs report on Friday. Economists, according to Bloomberg data, expect nonfarm payrolls to climb by 50,000 and for the unemployment rate to remain at 4.3 percent (Note: A government shutdown could postpone the release of this report). Other labor market data this week includes job openings (Tuesday) and ADP employment change (Wednesday) and initial jobless claims on Thursday. Other economic reports of interest include the ISMs indices on Wednesday (manufacturing) and Friday (services), as well as factory orders on Thursday. It will be a relatively quiet week on the earnings front, with just five members of the S&P 500 scheduled to release results. Finally, it will be another busy week for Fed speakers with 10 speeches scheduled throughout the week.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Nasdaq Composite Index is a broad-based capitalization-weighted index of stocks in all three Nasdaq tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.