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Monthly Economic and Investment Outlook

September 2025 Economic and Investment Outlook

United States

stock market bull statue
  • Federal Reserve Independence in Focus: Political pressures are not new for the Fed. However, August’s developments, with one Fed governor resigning and the possible removal of another, were unprecedented and put the independence of the Federal Reserve in the spotlight of global markets. This could have significant ramifications for the U.S. dollar and U.S. Treasury instruments. If concerns about the Fed grow (due to a perceived lack of independence or expectations for material changes), the U.S. dollar could decline further versus other currencies while yields on longer-dated Treasuries could move higher. 
  • Interest Rates: August did not have a formal Federal Reserve meeting, but there was the Jackson Hole Economic Policy Symposium, where Fed Chair Powell’s comments placed greater emphasis on the employment picture this time around versus inflation, as he noted the labor market is in a “curious kind of balance” with supply and demand both moderating. He also said, “The stability of the unemployment rate along with other labor market measures allow us to proceed carefully.” 

    • US Consumer Confidence

  • U.S. Consumer: The Consumer Confidence Index declined in August to 97.4 from July’s 98.7. The 97.4 was higher than consensus expectations but reflected increasingly cautious consumers as survey respondents lowered their employment expectations while increasing their inflation expectations.
  • Employment: In line with Fed Chair Powell’s comments, the nonfarm payroll report for August came in much lower than expected at +22k jobs (expectations were for +75k). There was also a significant revision to the June numbers which took the final number to -13k, the first monthly decline since 2020. The unemployment rate moved to the highest rate since 2021 at 4.3%. This was the fourth monthly jobs report in a row below +100k and brought the 3-month average to just +29k. Weekly initial unemployment claims remain low, which suggests U.S. employers are slow to hire but also slow to eliminate jobs.


    • ISM Services vs. Manufacturing 
      

  • U.S Manufacturing: The Institute of Supply Management (ISM) Manufacturing Index for August showed a 6th straight month of contraction, coming in at 48.7. This index has only been in expansion territory (above 50) twice in the last 33 months. A bright spot from the report, raw materials seem to be stabilizing a bit as they were at their lowest level since February.
  • U.S. Services: The ISM Services Index rose to 52.0 in August (well into expansionary territory) from 50.1 in July. The +1.9-point increase was the fastest increase in the last 6 months. Within the report, new orders had their biggest increase in 11 months, coming in at 56.0. In total, 12 of the 16 services sectors expanded during the month.

Global

  • Geopolitical tensions remain around trade policies, but as we head into the fall, political focus is shifting to domestic politics in a lot of countries around the world. In fact, political uncertainty in countries like France, the United Kingdom and Japan has had a significant impact on financial markets.
  • In France, political uncertainty drove 10-year yields in that country above 3.58% which is near the highest levels since 2012. The concerns stem from public push back regarding recently ousted Prime Minister Francois Bayrou’s proposed budget that had €44 billion in spending cuts and tax increases designed to address France’s debt level, which is expanding at €5,000/second. Of course, the budget problems have only accelerated since President Emmanual Macron dissolved Parliament in June 2024.


    • Global Government 10-Year Yields 
      

  • As noted, the U.K. is another country struggling with fiscal policy concerns, and the bond market responded by selling the U.K.’s 30-year gilts, which drove yields up to the highest level since 1998 (+5.7%). Unfortunately for the U.K., the higher yields will only exacerbate the fiscal policy problems as debt servicing payments have already increased by $10.7 billion. U.K. debt-to-GDP is roughly 100% currently, but the challenging fiscal environment could restrict growth in the country and push the debt-to-GDP ratio higher.
  • German business confidence rose to 89.0 in August from 88.6 in July, which is the highest level since April 2024. Within the report, the expectations or outlook portion of the index rose to 91.6 from a revised 90.8 in July (highest since 2022). Germany’s industrial production also increased +1.3% in the month of July, the first increase in production levels since March. Unfortunately, even as optimism started to rise, there were also some detractors during July, with factory orders -2.9% and exports declining –0.6% during the month. The Eurozone’s largest economy is still trying to gain positive momentum after more than three years of challenging economic conditions.

    • Germany's GDP Quarter-over-Quarter    

  • Canada’s Q2 GDP contracted by a -1.6% annualized rate. Not only was this the biggest decline since the pandemic, but it’s the primary drivers that should concern Canada. For the quarter, Canadian exports fell 27% while business investments within the country declined 10.1%.
  • Chinese exports to the U.S. fell by 33% in the month of August. This was the 5th straight month of double-digit declines, but Chinese exporters have been resilient and have increased their shipments to other areas of the world like the 10-nation Southeast Asia trading bloc (+23%), Africa (+26%) and the Eurozone (+10%). In fact, container ship volume at China’s busiest port, Shanghai, reached a record level in August.

Fixed Income

  • Interest Rate Expectations: Following the cooling in the non-farm payrolls jobs number last month and a rise in the unemployment rate to 4.3%, the highest since 2021, the Fed Funds market is currently pricing in with certainty a quarter point cut in the Fed Funds rate at the Federal Reserve’s September meeting and future cuts in October and December. 
  • Anticipated Fed Action: The latest jobs data and downward revisions will heighten concern about the durability of the labor market. Several sectors, including information technology, financial activities, manufacturing, federal government and business services, posted outright declines in August and wage gains moderated. We believe it likely that the Fed will cut rates in September, given the weakness in the labor market. However, with the potential for an acceleration in inflation, further cuts could be optimistic.
  • Ten Year Yield: The 10Y yield sits a little above 4.0%, an important psychological barrier as we have noted before. A level below 4% indicates greater investor perception of an upcoming recession. If inflation is weaker than expected or economic data continues to deteriorate, the 10Y yield could continue to fall toward the post Liberation Day low of 3.85%.

    • 10 Year U.S. Treasury Yield

  • Longer Rates: The 30-year Treasury touched 5% early this month, likely amid concerns over policy, debt and inflation. However, on the short end, the 2Y continues to fall based on expectations of Fed interest rate cuts. 

    • US 2Yr Treasury vs. US 30Yr Treasury
    Source: Bloomberg

Tactical Fixed Income Allocation

  • Neutral duration to the fixed income strategy’s respective benchmark as the Fed remains on a drawn-out easing path. At the same time, U.S. fiscal deficits and debt are high. At the margin international debt is becoming relatively more attractive and central banks may look to diversify their holdings in the future. 
  • Slight overweight to short-term investment grade corporates versus the respective benchmark to capture additional income with minimal incremental risk.
  • Allocation to short-term Treasury Inflation Protected Securities (TIPS) due to risk of sticky inflation (in short-term) exacerbated by inflationary policies. 

Equity Market

  • Equity Review: Despite ongoing news flow on tariffs, geopolitical concerns and the threat of politicization of the Federal Reserve, equities continue to reach new highs. Investors expect the equity bull market to continue, driven by strong corporate earnings growth.
  • Earnings Review: With nearly all the stocks in the S&P500 having reported their Q2 earnings, the aggregate earnings beat is 9% and U.S. earnings upgrades are at a 4-year high. Calendar year 2025 EPS forecasts have rebounded back to March levels, and 2025 growth vs. 2024 has increased to 10.7%. After NVIDIA’s 4% earnings surprise, the average net income beat is 10.6% for the AI Hyperscalers.
  • Valuation & Broadening of Rally: Stock multiples are right back at highs, which are justified if the earnings revisions come to fruition. At the same time, the rally has broadened and we currently have the highest percentage of stocks above their 200-day moving average all year. The stock rally has also broadened to Small Caps as the Russell 2000 has returned about 5.5% more than the S&P500 as of August 1st.

    • Pct. of Stocks Above the 200-Day Moving Average
    Source: Strategas Research

  • AI Build Out: Technology companies, once thought of as capital expenditure light, continue to invest in AI. Technology investment in AI is now more than non-Tech sectors combined and is helping drive economic growth.  

    • Tech Capex % Total Capex 2025 Q2: 54.3%
    Source: Piper Sandler Research

Tactical Equity Allocation

  • Overweight to U.S. Large Cap stocks with an emphasis on equities with quality, strong cash flow characteristics and lower volatility. A focus on companies that are more insulated from tariff shocks and have strong pricing power.
  • Neutral International Developed stocks with no exposure to Emerging Markets. We remain concerned about reciprocal tariff policy as it impacts Emerging Markets.
  • Exposure to gold to serve as a hedge, in a geopolitically tense global environment, and supported by strong central bank buying.
Notices & Disclosures

Products and services offered through F.N.B. Wealth Management are not FDIC insured; and are not insured by any Federal Government Agency, are not deposits or obligations of or guaranteed by First National Bank of Pennsylvania or its affiliates and may go down in value.

This report is provided for informational purposes only. The report includes forward-looking statements and reflects the current opinions of the authors, which are subject to change without notice, as are the information and assumptions upon which they are based. Changes in market conditions, changes to applicable laws, and various other events may render the contents no longer reflective of our positions.

Information in this report is obtained from sources F.N.B. Wealth Management (FNBWM) believes to be reliable, but we cannot guarantee the accuracy, timeliness, or completeness of information obtained from third party sources. Charts and statistics included throughout then report are for illustrative purposes only and do not represent any portfolio FNBWM manages. Indices are not available for direct investment, and index performance does not reflect the expenses or management fees associated with investing in securities. Investing involves risk and past performance is not a guarantee of future results, and there can be no assurance that any action taken based upon the information referenced in this report will be profitable, equal any historical performance, or be suitable for your portfolio or individual situation.

Tactical Fixed Income and Tactical Equity Allocations in this report reflect FNBWM’s broad positioning for each asset class and are provided for informational purposes only. The inclusion of these allocations does not constitute an offer to buy or sell, nor a recommendation to buy or sell, any security or financial instrument or take any particular action. Neither these allocations nor any other information presented within this report constitute personalized investment advice, and the report’s authors do not account for the financial situation or specific needs of any individual in preparing the report. You are encouraged consult with your investment advisor regarding its applicability to your individual situation.

F.N.B. Wealth Management refers to F.N.B. Investment Advisors, Inc. and First National Trust Company, which are subsidiaries of First National Bank of Pennsylvania (FNBPA) and F.N.B. Corporation (FNB).  Accounts and services offered through F.N.B. Wealth Management are not FDIC insured or insured by any Federal Government Agency and are not deposits or obligations of or otherwise guaranteed by FNBPA or any FNB affiliate and may lose value.

 

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