Equity markets have staged a strong rally from the April lows, supported by economic and earnings data that have proven more resilient than initially feared. While our investment process incorporates a wide range of inputs, we highlight below several developments that have been particularly relevant in recent weeks.
1. Federal Reserve Policy
Market expectations currently call for two rate cuts totaling 0.50% by year-end. The challenge for policymakers is that inflation remains above the Federal Reserve’s 2% target, with the Personal Consumption Expenditures (PCE) price index most recently at 2.9%. Housing and autos remain the primary contributors to inflation, reflecting the lagged impact of prior price increases. Tariff-related pressures persist, though to date the effect has been less pronounced than originally anticipated.
The combination of persistent inflation and a moderating labor market complicates the Fed’s path forward. However, given that current inflation drivers are among the most lagged components, the Fed may feel it has sufficient flexibility to begin cutting rates despite headline levels remaining elevated.
2. Corporate Earnings
Earnings growth in the S&P 500 has exceeded expectations this year, even as projections improved following tariff-related uncertainty in April. Consensus forecasts now call for 12–13% earnings growth in 2026 and 2027, notably above the long-term average of 7–10%. This raises the bar for companies and heightens the risk of disappointment in future reporting periods.
NVIDIA’s recent results illustrate the point. The company reported another record quarter with more than $40 billion in revenue, up 56% year-over-year. However, this represented its slowest growth rate in two years. Given the exceptionally high expectations for the market’s largest company, now valued at $4 trillion, shares traded lower initially despite the strong headline numbers.
3. U.S. Labor Market
The labor market has been resilient, but hiring momentum is slowing. Layoffs have not accelerated meaningfully, perhaps reflecting lessons learned during the post-pandemic recovery when many firms struggled to rehire talent. The August jobs report, however, showed some softening, with the unemployment rate rising to 4.3%. Labor market dynamics remain a key variable for consumer spending and, in turn, corporate profitability.
Bottom Line
Since April 8, the S&P 500 has advanced approximately 30%, underscoring the sharp reversals that can occur in equity markets. Importantly, about one-third of that rally—roughly 10%—occurred in the immediate aftermath of the market’s trough. This reinforces a central tenet of our investment philosophy: markets often deliver their strongest gains directly following periods of stress.
Attempting to time these inflection points can be costly. Missing just a handful of the market’s best days has historically reduced long-term returns by 1–3% on an annualized basis. Our focus remains on building and maintaining portfolios aligned with client goals, allowing us to stay patient through volatility and capture the long-term benefits of compounding.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable. Gryphon, however, cannot guarantee the accuracy or completeness of such information. Gryphon does not provide tax, accounting or legal advice, and nothing contained in these materials should be taken as tax, accounting or legal advice. Individuals should seek such advice based on their own particular circumstances from a qualified tax, accounting or legal advisor.