Market Overview & Outlook - Equity market experienced a phenomenal recovery, with low stocks up 38% since Liberation Day [1] - A potential 5-10% correction is possible, considering the S&P's forward multiples at approximately 22 times earnings and the 10-year Treasury yields slightly above 4% [2] - The market is expected to see a rolling rotation, with profit-taking from the "Magnificent Seven" benefiting small-cap, value, and international stocks [3] Earnings & Revenue Performance - Second-quarter revenues increased by 6% year-over-year, and earnings increased by 12% year-over-year, both exceeding expectations [4] - Third-quarter revenues are projected to increase by approximately 6-7%, with earnings expected to show solid double-digit growth [4] - Federated Hermes is reevaluating and increasing its earnings estimates for the remainder of the current year and the following year [5] Economic Indicators & GDP - The U S GDP estimate for the next year is 28%, while the blue-chip consensus is 15% [6] International Markets - International stocks are considered attractive due to valuations being 40% cheaper than domestic stocks, compared to a typical discount of 20% [8] - The dividend yield on international stocks is approximately 29%, significantly higher than the S&P's 12% [8] - A weak dollar and accommodative foreign central banks are expected to facilitate stronger economic and earnings growth in international markets [9] - The company maintains an overweight position in international assets, viewing them as a favorable subcategory [10]

Economic Overview - The U.S. economy is experiencing an inflection point with the Federal Reserve cutting interest rates for the first time this month due to a weakening labor market, despite inflation remaining above the 2% target [1][3] - Increased uncertainty is attributed to changes in trade policy, tariffs, and immigration policy under the Trump administration, affecting economic growth, inflation, and unemployment forecasts [1] Economic Growth Projections - The Federal Reserve projects real GDP growth of 2.4% in 2024, with a slowdown expected this year before a rebound, showing an annualized growth rate of 1.6% in the first half of 2025 [5] - The Fed anticipates GDP growth of 1.6% in Q4 of 2025, rising to 1.8% in 2026 and 1.9% in 2027, before returning to 1.8% in 2028 [5] - The Congressional Budget Office (CBO) projects GDP growth of 1.4% for 2025, increasing to 2.2% in 2026, and returning to 1.8% in 2027 and 2028 [6] - The Trump administration's Office of Management and Budget (OMB) estimates GDP growth of 1.8% in 2025, rising to 3.2% in 2026 and 3.1% in the following two years [6] Inflation Projections - The personal consumption expenditures (PCE) index, the Fed's preferred inflation gauge, recorded a PCE inflation rate of 2.7% in August [7] - The Fed projects PCE inflation to rise to 3% year-over-year in Q4 of 2025, then decline to 2.6% in 2026, 2.1% in 2027, and return to the 2% target in 2028 [8] - CBO forecasts PCE inflation to reach 3.1% in Q4 of 2025, declining to 2.4% in 2026, and returning to 2% in 2027 and 2028 [8] - The OMB estimates PCE inflation at 2.4% by the end of this year, declining to 2% in 2026 and remaining there through 2028 [9] Consumer Price Index (CPI) Projections - CBO projects CPI inflation to hit 2.8% year-over-year in 2025, declining to 2.7% in 2026, and further to 2.2% in 2027 and 2028 [10] - OMB estimates CPI inflation at 2.5% this year, declining to 2.2% in 2026, then slightly rising to 2.3% in 2027, and returning to 2.2% in 2028 [10] Unemployment Rate Projections - The unemployment rate rose to 4.3% in August, with expectations for the Bureau of Labor Statistics to release the September jobs report soon [11] - The Fed projects the unemployment rate to rise to 4.5% in Q4 of this year, gradually declining to 4.4% in 2026, 4.3% in 2027, and 4.2% in 2028 [12] - CBO sees the unemployment rate at 4.5% in Q4 of 2025, declining to 4.2% in 2026, then rising back to 4.4% in 2027 and 2028 [12] - The OMB projects the unemployment rate to fall to 4.1% this year, declining to 3.9% in 2026 and 3.7% in 2027 and 2028 [13]

Market Risk Assessment - Investors are taking on excessive risk in South African corporate bonds [1] - The increased risk is due to the weak outlook for economic growth in South Africa [1] Company Focus - Prescient highlights the excessive risk-taking behavior [1]

Treasuries were set to close out a third straight quarter of gains as a pending US government shutdown threatens to slow economic growth https://t.co/czHFeK5S8t ...

European stocks were set to wrap up September with the best performance since 2019, as optimism around resilient US economic growth and lower interest rates lifted risk appetite https://t.co/Zsyvj6ePlS ...

India must grow 12% a year to fix its jobs crisis, Morgan Stanley warns https://t.co/5UJmi6ToVy ...

Asia's economies grew at a solid pace in the first half, but that momentum will slow as tariffs take effect, the Asian Development Bank said. ...

The Reserve Bank of India’s interest rate decision on Wednesday will likely be a close call, with policymakers facing multiple reasons to lower borrowing costs as inflation stays low and economic growth takes a knock from high US tariffs https://t.co/klulOiZE3z ...

Zimbabwe ordered government departments to halt unbudgeted spending and focus funds only on projects that will support economic growth https://t.co/OgSZlUap9N ...

Stagflation Definition and Components - Stagflation is defined as a combination of weak or negative growth, high unemployment, and high inflation [1] - Economic growth is measured by GDP (Gross Domestic Product), which tracks what's made inside US borders [2] - Inflation is tracked using CPI (Consumer Price Index), representing a household shopping basket, and PCE (Personal Consumption Expenditures), a broader measure favored by the Federal Reserve [3][4] - Job market health is assessed via the unemployment rate and monthly payroll changes reported by the Bureau of Labor Statistics, with weekly unemployment claims offering higher-frequency insights [5] Historical Context and Current Assessment - The 1970s experienced significant stagflation with unemployment exceeding 7-8%, double-digit inflation, and contracting GDP [6] - The pandemic period saw a different pattern: initial COVID impact led to unemployment spikes and GDP decline, but without immediate price increases (stag without flation) [7] - In 2022, stimulus measures contributed to inflation exceeding 9%, while the economy contracted modestly and unemployment remained low [7] - Currently, unemployment is moderate, PCE is in the high 2% range, and GDP is relatively strong, not indicative of 1970s-style stagflation [8] Market and Economic Indicators to Watch - Precious metals, such as gold (up over 40% this year) and silver (approaching 60%), tend to perform well during periods of elevated inflation and Federal Reserve interest rate cuts [8] - Key data points to monitor include jobs data, CPI, PCE, and GDP, with particular attention to services inflation (shelter, insurance, healthcare costs) [9] - Energy prices and the strength of the US dollar are important factors, as an oil price surge or a weaker dollar could quickly reignite headline inflation [9][10] - Real incomes (workers' paychecks after inflation) should be monitored relative to demand; a decline in savings and increased credit card usage could signal potential issues [10][11]