Stocks have been bucking the historical September weakness so far, thanks to an extremely favorable setup with Federal Reserve rate cuts, strong earnings, solid economic growth and muted inflation.
The stock market’s strength is making it tougher to put new money to work, as valuations are rising, which makes it all the more important for investors to be selective and bottoms up.
We’re looking for opportunities to put new money to work in stocks that are set to benefit from the surge in energy and power demand that is being generated from artificial intelligence, particularly stocks related to nuclear energy and water production. Many stocks in this category benefit from AI, but are trading at more attractive valuations than the pure play AI names.
The focus for the remainder of 2025 will be more about what will drive markets in 2026, which includes earnings, the prospects of additional rate cuts in 2026, and the eventual uncertainty over the midterm elections.
Friday’s PCE is the next key economic data point to watch, as its strength or weakness will play into the calculation of the Federal Reserve’s next interest rate decision in late October. In the near term though, we believe that labor market data carries more weight for the Fed than the inflation data.
