If global markets flatlined at current prices through New Year’s Eve, the results would go into the history books, indicating a solid, widespread bull run for 2025. The question is whether the priced-for-perfection state of affairs will endure through the fourth quarter?

Investor sentiment at the moment leans firmly into a “yes” stance. Using a set of ETFs, all the major asset classes are posting year-to-date gains, led by foreign stocks in developed markets ex-US (VEA), which is up nearly 25% in 2025 through Friday’s close (Sep. 5).

The bulls still see the near-term outlook as favorable, in part because the Federal Reserve is expected to start cutting interest rates at next week’s policy meeting. The monetary easing is widely assumed to provide markets with a new round of stimulus.

Analysis by Bloomberg Intelligence lends some support to that view by noting that rate cuts by the Fed in September — when the economy isn’t in recession — show a history of S&P 500 rallies.
 

The US economy isn’t in recession, and so the rate-cut history vis-à-vis September looks encouraging. The Atlanta Fed’s GDPNow model is currently nowcasting that third-quarter GDP is up a strong 3.0%. The Dallas Fed’s Weekly Economic Index through Aug. 30 also downplays the possibility that the economy is contracting.

But recession chatter is bubbling again after Friday’s weak jobs report in August, and so confidence about the economy’s strength is debatable. Adding to the angst is a downside revision to a modest loss in payrolls in June, the first monthly decide in payrolls since the pandemic was raging in 2020.

“The labor market’s starting to freeze,” said Diane Swonk at KPMG. “It’s never good to see red ink and that was the first red ink we’ve seen since December 2020 at the height of the Delta wave [of coronavirus] when the economy almost went into a double-dip recession.”
 

By some accounts, the US is already in recession. But that view looks premature, according to this week’s analysis via The US Business Cycle Risk Report, a sister publication to CapitalSpectator.com. That said, there are new signs that the summer revival in US macro momentum has peaked, per new forward estimates through October of the Economic Trend Index and Economic Momentum Index. Both indicators are above their respective tipping points that signal recession (50% for ETI and 0% for EMI), but both metrics are showing renewed signs of weakening. The implication: softer growth is likely. How slow is still open for debate.
 

Markets, by contrast, show minimal concern. But the uncertainty is real and more than trivial, courtesy of tariffs. This is old news, of course, but two key questions remain: Will tariffs slow growth and/or raise inflation?

It’s still too soon to answer with a high degree of confidence – unless you’re listening to Mr. Market.

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