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Markets received highly anticipated updates on inflation that showed mixed readings for August. CPI inflation was
about in line with expectations, rising to 2.9% annualized. Meanwhile, producer price inflation resumed its trend
lower, falling to 2.6%. In combination, inflation is elevated but appears generally contained, though tariffs could
drive price pressures.
Downward revisions to job gains and higher initial jobless claims added to the recent trend of data pointing
to a softening labor market. Despite inflation remaining above the Fed's 2% target, we expect the Fed to cut
rates on September 17 in support of its maximum-employment mandate.
Markets are pricing in a faster pace of easing than the Fed's own projections, which will be updated at the
September meeting. Investors will likely look for signs that could point to deeper rate cuts ahead.
Bond yields dropped on expectations of Fed easing, with the 10-year Treasury yield briefly touching 4.0%,
matching the lows for the year reached in April. Lower rates should reduce borrowing costs for individuals and
businesses, in our view, which would be supportive of the economy and corporate profits. Lower discount rates
should help benefit equity markets near record highs with elevated valuations.
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Markets were closely watching this past week's consumer price index (CPI) report, looking for any potential impact
on the Fed's September meeting. The report showed that CPI inflation increased to 2.9% annualized in August, as
expected, from 2.7% the prior month. Energy prices edged up 0.7% month-over-month, led by a 1.9% gain in gasoline,
serving as key drivers to the uptick of headline inflation1. Core CPI, which excludes more-volatile food and energy
prices, matched forecasts to hold steady at 3.1%.
We expect tariffs to put some additional pressure on inflation, as higher import costs are at least partially passed
along to consumers. However, most of this impact should be near-term price hikes that aren't a persistent driver of
inflation, in our view. While inflation remains above the Fed's 2.0% target, we expect the Fed to cut rates to help
support the slowing labor market.

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Producer price index (PPI) inflation fell to 2.6% annualized in August, well below estimates calling for an increase to 3.3%.
Trade services inflation, down 1.7% month-over-month1, was a key contributor to the drop, likely reflecting narrowing margins
for wholesalers and retailers. Core PPI inflation dipped to 2.8% year-over-year, also significantly cooler than forecasts for
3.5%. These readings returned wholesale inflation to its uneven trend lower this year, shown below.

Tariff-related price hikes remained contained through August, as firms across the supply chain appear to absorb
higher costs. While price pressures are expected build over the coming months, these cooler PPI inflation readings
should help keep consumer prices contained, in our view.
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Following the last two monthly employment reports showing job gains well below estimates and downward revisions to
prior months, the U.S. Bureau of Labor Statistics released its quarterly census of employment and wages (QCEW).
The release reflected 911,000 fewer jobs for the 12-month period through March 2025 than previously reported,
compared with forecasts for 800,000 fewer jobs. This downward revision indicates that initial employment reports
overestimated job gains, meaning job growth has been slower than previously thought.
Initial jobless claims added to the recent trend of data pointing to a softening labor market, rising to 263,000
this past week. The reading was the highest in four years and well above forecasts for a pullback to 231,000.
Continuing claims, which measures the total number of people receiving benefits, held steady at 1.94 million.
As shown in the chart below, the jobless claims and the unemployment rate have trended higher this year.

While demand for labor has declined, the unemployment rate appears to remain contained at 4.3%, well below the
historical average of 5.7%. There is also evidence that labor supply as fallen, likely driven by tighter
immigration enforcement and demographics of the aging workforce. As a result, the labor force participation
rate, which measures the proportion of the civilian population that is employed or actively looking for work,
drifted lower to 62.3% in August, from 62.7% a year ago. This adds to a broader trend that has continued for
more than two decades. While this means fewer jobs are likely needed to balance the labor market, we expect
the Fed to act to help ensure the softening labor market doesn't lead to a downturn in the economy.
Despite inflation remaining above the Fed's 2.0% target, the central bank appears poised to resume interest-rate
cuts for the first time this year, in support of its maximum-employment mandate. This month, the Fed will also
update its quarterly economic projections for the fed funds rate, unemployment, inflation and economic growth.
The June projection showed the fed funds rate dropping to 3.6% by the end of next year. Illustrated in the
chart below, bond markets are pricing in a faster pace of easing, with fed funds falling below 3% over the
same timeframe.

Markets will likely look for any update to the fed funds forecast — known as the “dot plot” — that could point to
accelerated easing to help support the labor market. We expect the Fed to ease one or two times this year, followed
by an additional one or two cuts next year, likely bringing the fed funds rate down to the 3% - 3.5% range.
Bond yields moved lower this past week, with the benchmark 10-year Treasury yield briefly touching 4.0%, matching
the lows for the year reached in April1. Lower yields have driven solid fixed-income performance. U.S. investment
grade bonds — which we believe should serve as the foundation of the fixed-income portion of portfolios — have
generated 6.5% returns this year, well above their 4.9% average yield to start the year.
As the Fed likely cuts rates in the months ahead, short-term Treasury yields — particularly those on T-bills — should
drop along with the fed funds rate. However, we think the yield curve has room to steepen toward historical averages,
potentially offsetting falling short-term yields. We expect the 10-year Treasury yield to stay in the 4.0%–4.5% range,
as inflation uncertainty and deficit concerns likely prevent yields from falling much further. Fed rate cuts should
help keep yields contained to the upside, in our view.
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While the labor market appears to be softening, we expect the economy to stabilize and potentially reaccelerate
in the months ahead, supported by tailwinds of fiscal stimulus, monetary-policy easing, and deregulation. With
major stock indexes hovering near record highs and valuation by some measures elevated, markets could experience
volatility ahead. We suggest investors use potential pullbacks as opportunities to invest at better prices or
rebalance to maintain diversification.
We continue to favor U.S. large- and mid-cap stocks, particularly quality and more cyclical stocks that could
benefit from a potential broadening of market leadership beyond mega-cap technology. We expect the relative
strength of the U.S. economy, elevated but contained inflation, and higher interest rates to help support the
value of the U.S. dollar, potentially weighing on international large-cap stocks, for which we recommend an
underweight allocation.
From a sector perspective, we recommend overweight positions in consumer discretionary, financials and health care.
The consumer discretionary sector could continue to recover, supported by reduced tariff uncertainty and lower
tax rates. Financial companies could benefit from less exposure to tariffs and the potential for a steeper yield
curve as the Fed eases. Health care stocks trade at a discount to the broader market, likely reflecting the sector's
challenges, but also offering the opportunity for valuation expansion.
Within fixed income, international bond yields have risen in recent months, due in part to concerns with government
debt. Slowing economic growth and higher defense spending, particularly in Europe, have added to government budget
deficits. Despite falling Treasury yields, U.S. bonds continue to offer higher rates than international bonds. Many
international central banks are likely near the end of their rate-cutting cycles, which would limit the potential
for bond price appreciation driven by lower short-term yields. Overall, we suggest an underweight allocation to
international bonds.
As we go into the last months of the year, your financial advisor is a great resource to help ensure your investments
are aligned with your goals, time horizon and comfort with risk. This can assess whether you are on track to achieve
your financial goals.
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Final Words: Market indicates neutral. No new buys.

Below is last week sector performance
report.
Weekly Sector Performance for Sept 8-12, 2025:
$XLE Energy: 1.42%, RSI: 54.74
$XLK Technology: 3.05%, RSI: 64.79
$XLC Communication: 2.32%, RSI: 76.73
$XLY Consumer Discretionary: 1.50%, RSI: 66.18
$XLP Consumer Staples: -0.68%, RSI: 43.35
$XLF Financial: 1.38%, RSI: 56.85
$XLV Health Care: 0.15%, RSI: 56.07
$XLI Industrials: 0.43%, RSI: 50.98
$XLB Materials: -0.30%, RSI: 53.96
$XLRE Real Estate: 0.40%, RSI: 56.10
$XLU Utilities: 2.43%, RSI: 56.74

If you are looking for investment opportunities, you can take a look at our
Hidden Gems
section, and if you want to see our past performance, visit our
Past Performance section. If you are looking for
safe and low cost Exchange Traded funds(ETFs), check out our
ETF recommendations.
Currrent Shiller PE (see below) is showing overbought conditions as index is far above mean/media
and our AryaFin engine is indicating caution. Have a good weekend.
