Dear traders, dear stock market friends.
The S&P 500 Index is in impressive shape at the end of the third quarter of 2025. Since the beginning of the year, the world's most important share index has already gained more than 12% (on a total return basis even +13.4 %), once again demonstrating its strength.
Over the last twelve months, the performance amounts to +17.6 %. This solid performance was achieved against the backdrop of a complex macroeconomic environment characterized by trade tariffs, interest rate policy and robust corporate results. While the markets were still suffering from the uncertainties surrounding the Trump administration's trade policy at the start of the year, investors have now adapted to the new environment and are increasingly focusing on the fundamental drivers of the equity markets. In this analysis, we take a closer look at the macroeconomic environment as well as the signals from chart technology and intermarket analysis.
Review of the year to date
The year 2025 began with considerable challenges for the US equity markets, but these were gradually overcome. After a difficult start to the year, the S&P 500 reached its lowest point on April 7, from which the index has since risen by more than 35 % (around 30 % on a closing price basis). This recovery underlines the resilience of the US stock market and the ability of investors to adapt to changing conditions.
Temporary turbulence due to trade conflict
The dominant themes of the year were undoubtedly the Trump administration's trade policy, the development of interest rate policy and robust corporate results. The announcement of comprehensive tariffs in April initially led to strong turbulence, as there was a threat of negative effects on corporate profits and inflation. However, the delay in implementing various customs measures and the adjustment of companies to the new environment helped to calm things down quickly.
Rally on a broad front
The sectoral development in the year to date is particularly noteworthy. While the communication services sector has taken the lead with an increase of almost 25 %, the technology sector has also remained strong at 17.5 %.
This development shows that despite all the macroeconomic uncertainties, the structural growth trends in innovative sectors remain intact. Industrials (approx. +15 %) and utilities (approx. +13 %) round off the positive picture and underline the breadth of the current market movement.
Robust company results provide a tailwind
The company's results were surprisingly robust despite the trade policy challenges. Profit growth of 7.6 % year-on-year is expected for the third quarter of 2025, which would represent the ninth consecutive quarter of profit growth.
The continuity in profit development is particularly noteworthy as it shows that many companies have successfully developed strategies to deal with the increased costs of tariffs.
The adaptability of the American economy is also reflected in the way companies deal with customs duties. Many companies have initially borne some of the additional costs themselves in order to maintain their market position, but plan to pass them on to consumers in the future. This strategic approach has helped to limit the immediate impact on profit margins.
Primary upward trend intact
A look at the long-term chart of the S&P 500 quickly reveals that the market is in a primary uptrend. This is confirmed not only by the numerous new all-time highs in recent months, but also by trend-following indicators such as moving averages or the classic trend definition according to the Dow Theory.
In addition, all other major US indices (Nasdaq 100, Dow Jones Industrial Average, Russell 2000) also reached new highs over the course of the year, which is a further confirmation of the bull market.
Cooling on the labor market
However, the US labor market is showing clear signs of weakening, which entails both opportunities and risks for the further development of the stock markets.
The labor market report for August (Non Farm Payrolls) revealed a surprisingly weak number of newly created jobs of just 22,000. This is significantly less than expected and marks a considerable slowdown compared to previous months. What is particularly worrying is that employment growth has practically stagnated since April and the average for the past four months is just 27,000 new jobs per month.
The unemployment rate rose to 4.3 % in August, slightly above the previous month's level of 4.2 %. While the unemployment rate is still low in historical terms, the upward trend of recent months shows a development that is at least somewhat cautionary.
In addition, the latest JOLTS data (Job Openings and Labor Turnover Survey) confirms the trend of slowing labour market momentum. The number of job vacancies hardly changed and remained below the previous year's level. At the same time, both hiring and voluntary redundancies remain at a low level, which indicates a general reluctance on the part of both employers and employees.
Bad news = good news?
The slowdown on the labor market has both positive and negative implications for the stock markets. On the one hand, a significant weakening of the labor market increases the risk of a recession, which would have a negative impact on corporate profits and thus on share prices. On the other hand, a moderate slowdown in the labor market could give the Fed the necessary leeway to cut interest rates more aggressively, which in turn would be positive for equity valuations.
The Fed has already made it clear that it considers the risks to the labor market to have increased and emphasized that the downside risks to employment have risen, signaling a shift in monetary policy priorities.
Inflation still above target level
Inflation remains one of the other key issues for monetary policy and the stock market, even if the Fed's priorities have shifted in light of the labor market trend. The latest data shows that although inflation remains above the Fed's target range, it is still within a manageable range.
Moderate rise in consumer prices recently
The Consumer Price Index (CPI) rose by 2.9 % year-on-year in August 2025, a slight acceleration from July's reading of 2.7 %. This marks the fourth consecutive month of rising inflation rates, making it clear that the risk of further rising inflation should not be lost sight of.
Core inflation, which excludes volatile components such as energy and food, stood at 3.1%, well above the Fed's target of 2 %.
Inflation should remain at around 3 % for the time being
The nowcast forecasts of the Federal Reserve Bank of Cleveland indicate that the trend could continue in September. The projections foresee an annual inflation rate of 3.0 % for the CPI and 2.96 % for the PCE deflator.
The Trump administration's trade policy is a key driver of the current inflation dynamic. The introduction of comprehensive tariffs on imported goods has led to noticeable price increases in various categories. Household equipment and cars have been particularly affected, with the tariff burdens being directly reflected in higher consumer prices.
At the same time, prices for services have also risen, with housing costs recently making the largest contribution to overall inflation with a monthly increase of 0.4 %.
Despite the increased inflation rates, the Fed has decided to shift the focus of its monetary policy. Jerome Powell already made it clear in his speech in Jackson Hole that the Fed currently considers the risks to the labor market to be more pressing than inflation, which has not yet fully declined.
However, persistently high inflation could possibly prompt the Fed to reconsider or slow down its plans to cut interest rates, which would tend to be negative for the stock market. On the other hand, many companies have shown that they are able to pass on higher costs to their customers, which supports profit margins. Wage growth of 3.7 % year-on-year is slightly above the rate of inflation, suggesting that consumers' real purchasing power remains largely intact.
New cycle of interest rate cuts begins
With its interest rate cut of 0.25 percentage points on September 17, the Fed initiated a new cycle of interest rate cuts, which is also likely to have an impact on the performance of the stock markets. The rate cut on Wednesday evening was the first since December 2024. Two further rate cuts are likely by the end of the year and, according to current data, two to three rate cuts are already possible for 2026.
Interest rate cuts are generally positive for the equity markets. Lower interest rates reduce the discount rates for future cash flows and make shares more attractive relative to fixed-interest investments. In addition, lower financing costs can stimulate economic growth and thus support corporate profits.
Of particular note is the historical perspective on rate cuts in an environment where the S&P 500 is near all-time highs. Statistical analysis shows that in 20 out of 20 cases where the Fed cut rates while the S&P 500 was trading less than 2% below its all-time high, the index was higher one year later.
Market breadth indicators clearly point to a continuation of the trend
In addition to the macroeconomic environment and the technical chart signals of the S&P 500, the analysis of market breadth should not be ignored as a further component of a comprehensive analysis. The most important market breadth indicators such as the Advance-Decline Line or the NYSE New Highs & New Lows are currently clearly signaling that the broad market is participating in the long-term uptrend. As long as the market breadth indicators do not show any weakness or divergences, this also suggests that the bull market will continue.
Sector rotation signals risk-on
The analysis of the sector rotation also signals a sustained risk appetite among investors. This can be seen from the fact that the offensive market sectors of the S&P 500 such as Consumer Discretionary (XLY), Communication Services (XLC), Technology (XLK) and Industrials (XLI) are performing significantly better than the defensive sectors such as Consumer Staples (XLP), Healthcare (XLV) and Utilities (XLU). This offensive sector rotation is typical of bull markets and is another clear trend-confirming signal.
The current market environment offers these opportunities
Both the fundamental factors and the Chart technique and the market breadth currently signal a clear long-term upward trend. Even if a temporary correction of a few percent is possible at any time, the chances are currently very good that the primary upward trend will continue in the medium term, at least until there is a change in the signal.
As a trader or investor, the most promising strategy is therefore to go with the flow. Corrections should primarily be seen as opportunities for new long exposures, whether in long-term trades in individual stocks or ETFs, in Swing trades at index level or with Standstill strategies with options such as Cash Secured Puts, Covered calls or Bull Put Spreads.
Author: Tobias Schmid
Date: 18.09.2025
