Summer is Over
The environment for risk assets over the past 5 months has been exceptional. Since Trump removed policy uncertainty with his pause on tariffs, markets have rallied back to all-time highs without much of a hiccup. (Chart 1)
S&P 500 – Past Year
Chart 1. Source: Bespoke
Both macro resilience and AI enthusiasm have seemingly materially raised the fundamental floor for U.S. equities while justifying higher valuations. However, despite these strong pillars holding up the market, there are risks that changed our fundamental outlook to a more neutral stance towards risk and portfolio positioning. (Chart 2)
US PMIs seem to be upbeat for now
Chart 2. Source: Gavekal Research
First, let’s evaluate our golden rule of investing: stay bullish on risk assets unless you have good reason to think that a recession is imminent. For now, a recession does not appear to be an immediate danger. However, threats are emerging, and we have another principle in our macro framework that has been a rallying cry for the year: starting points matter.
By almost any fundamental valuation metric, equity and other risk markets are overvalued. Additionally, despite resilience, there are potential threats to the US economy. Growth scares start at peaks just as drawdowns start at all-time highs. Although policy uncertainty has likely peaked, tariff uncertainty still looms, and Federal Reserve policy is under a microscope. The Fed itself has admitted the economy is beginning to slow and is considering rate cuts this month. While we previously stated we don’t believe a recession is an immediate danger, policy changes could re-price expectations, and it wouldn’t take much of a catalyst to trigger a selloff in this frothy market. We could even see a rotation from more growth-oriented areas of the market to value, and even that could result in a correction in major indices based off the massive overweight positions in Mega Cap Tech.
Seasonality also provides another headwind for markets. Historically, September has been the weakest month of the year, even averaging negative monthly returns since 1928. While this is not a more prevalent part of our macro framework, the timing adds to some of the uncertainties. (Chart 3)
The U.S. Market has struggled the most in September S&P 500 average monthly performance since 1928
Chart 3. Source: RBC
In our global tactical and blended portfolios, we lowered our position in growth-oriented momentum stocks and increased our allocation to tactical fixed income. After overweighting risk for the historic summer run, we believe a combination of timing, economic weakness or policy disruption could knock down extreme valuations and a more neutral stance to risk is appropriate.
Fundamental Portfolios
(Positioning as of 9/10/2025)
Blended Portfolios
(Positioning as of 9/10/2025)
You can get more information by calling (800) 642-4276 or by emailing [email protected].
Best regards,
John A. Forlines III
Chief Investment Officer
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Past performance is no guarantee of future results. The material contained herein as well as any attachments is not an offer or solicitation for the purchase or sale of any financial instrument. It is presented only to provide information on investment strategies, opportunities and, on occasion, summary reviews on various portfolio performances. The investment descriptions and other information contained in this Market Commentary are based on data calculated by Donoghue Forlines LLC and other sources including Morningstar Direct. This summary does not constitute an offer to sell or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. The views expressed are current as of the date of publication and are subject to change without notice. There can be no assurance that markets, sectors or regions will perform as expected. These views are not intended as investment, legal or tax advice. Investment advice should be customized to individual investors objectives and circumstances. Legal and tax advice should be sought from qualified attorneys and tax advisers as appropriate.
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