Fundamental Analysis

1. Main Fundamental Diagnosis

September 23 strengthened the case for a restrictive U.S. monetary regime.

The flash S&P Global Composite PMI rose to 58.4, its strongest reading since July 2021, indicating exceptionally firm private-sector activity. However, the same survey showed a sharp increase in input-price pressure.

That combination matters because the Federal Reserve has just raised its policy range to 3.75–4.00%. Stronger activity would normally support equities, but in the current regime it also raises the probability of further tightening.

Treasury yields responded immediately. The 10-year yield rose 13.89 basis points to 5.106%, its highest level since 2007. The two-year yield rose 11.4 basis points to 4.891%.

Energy prices amplified the inflation signal. Brent crude settled at $103.08 after a 3.86% increase.

2. Fundamental Dashboard

3. S&P 500 Earnings

The earnings baseline remains strong.

The latest approved aggregate estimates remain approximately:

• 28.79% expected third-quarter earnings growth;
• 26.5% expected fourth-quarter earnings growth;
• 31.8% expected full-year 2026 earnings growth.

No new comparable aggregate earnings update on September 23 superseded those figures.

Reuters reported that AI-related heavyweights are responsible for a significant portion of the recent increase in aggregate earnings expectations.

4. Fundamental Earnings Breadth

The earnings backdrop remains stronger than the equity breadth backdrop.

Aggregate earnings expectations are robust, but equity leadership remains concentrated. The September 23 session again showed that megacap technology and AI-linked companies continue to exert disproportionate influence on both index performance and aggregate earnings expectations.

This does not invalidate the earnings trend, but it increases dependence on a relatively narrow group of companies continuing to deliver.

5. Market Valuation

The S&P 500 is trading at just under 19 times expected earnings, according to LSEG data cited by Reuters, its lowest forward valuation since 2023.

That represents a meaningful valuation improvement from earlier levels.

However, the comparison with bonds remains demanding. A forward P/E just below 19x implies a forward earnings yield a little above 5.2%, only modestly above a 10-year Treasury yield of 5.106%.

The equity-versus-bond valuation cushion therefore remains narrow despite the lower P/E multiple.

6. Free Cash Flow

No new reliable aggregate daily S&P 500 free-cash-flow yield was identified for September 23.

The structural issue remains unchanged: heavy AI-related capital expenditure raises the importance of cash conversion and return on invested capital.

Headline earnings growth remains strong, but free-cash-flow quality remains the more important confirmation variable for the largest capital spenders.

7. Equities Versus Bonds

The bond market was the principal cross-asset driver of the session.

• 10-year Treasury yield: 5.106%
• one-day change: +13.89 basis points
• highest level since 2007

The two-year yield rose to 4.891%, while a $70 billion five-year Treasury auction attracted weak demand and cleared at the highest auction yield since 2007.

Higher long-term yields increase the discount rate applied to future corporate cash flows and create direct competition for equity capital.

This was particularly relevant for growth and technology shares on September 23.

8. Credit Market

Credit remains calmer than equities.

The HYG/LQD ratio closed at approximately 0.7518, up from 0.7486 the prior session. Relative to its one-year history, the ratio remains in a tight, risk-on regime.

The latest available broad high-yield option-adjusted spread is around 2.68%, also consistent with a benign broad-credit environment.

A significant divergence persists inside lower-quality credit: CCC-and-lower spreads remain much wider than broad high-yield spreads.

Credit diagnosis: broad financing conditions do not confirm a systemic stress event. The current pressure is centered more clearly in rates, energy and equity valuation than in broad corporate credit.

9. Monetary Conditions

The Federal Reserve target range is 3.75–4.00% after the September rate increase.

Governor Michael Barr said that further policy adjustments are likely to be needed to ensure inflation returns to target in a timely fashion.

After the September 23 data and comments, short-term rate markets moved toward roughly a 70% probability of another increase at the October meeting.

The monetary regime is therefore becoming more restrictive, not less.

10. Macroeconomy

S&P Global’s flash U.S. Composite PMI rose to 58.4, the highest level since July 2021.

The survey also showed input-cost inflation at a nearly four-year high.

The signal is not recessionary. Instead, it points to an economy with unusually strong activity that may be generating more inflation pressure than the Federal Reserve can comfortably tolerate.

That changes the interpretation of strong economic data: stronger activity can now be negative for duration-sensitive assets if it raises the expected path of interest rates.

11. Energy and Inflation

Brent crude settled at $103.08, up 3.86%.

WTI settled at $92.16, up 1.81%.

U.S. crude inventories rose by approximately 3.0 million barrels to 426.4 million barrels in the week ended September 18, compared with expectations for a draw of roughly 641,000 barrels.

Despite higher inventories, geopolitical risk dominated the session.

The renewed rise in energy prices matters not only through headline inflation, but through transport, industrial and logistics costs.

12. Corporate Developments

The session showed renewed pressure on large technology and consumer-platform names:

• Alphabet fell approximately 3.8%.
• Amazon fell approximately 2.2%.
• the Philadelphia Semiconductor Index declined about 1.2%.
• Nvidia fell about 1.5%.
• Expedia and Airbnb each fell more than 7%.

Meta was a notable exception, rising about 1%.

The corporate tape therefore reinforced the broader theme of higher-rate pressure on long-duration growth assets, while company-specific AI narratives continued to produce substantial dispersion.

13. Fundamental Divergences

Strong growth versus weaker equities: A Composite PMI of 58.4 would normally be interpreted positively, but the market treated it as an inflation and rates risk.

Valuation improvement versus bond competition: The S&P 500 forward P/E has fallen below 19x, yet the 10-year Treasury yield above 5.1% leaves little room for multiple expansion.

Equities versus credit: Equity breadth deteriorated while broad credit remained tight.

Crude inventories versus oil prices: U.S. crude inventories rose, but geopolitical risk still pushed Brent nearly 4% higher.

14. What Matters Today — September 24

Primary market catalysts:

• U.S.–China summit: President Donald Trump and President Xi Jinping are scheduled to meet during Xi’s September 23–25 U.S. visit. Trade, technology, artificial intelligence policy and Taiwan are among the principal market-sensitive issues.
• 08:30 ET / 14:30 Spain: U.S. weekly initial jobless claims.
• 08:30 ET / 14:30 Spain: U.S. international transactions, second quarter.
• 10:00 ET / 16:00 Spain: U.S. new home sales for August.
• 13:00 ET / 19:00 Spain: U.S. seven-year Treasury auction.

The principal market linkage is now:

growth / oil → inflation expectations → Fed path → Treasury yields → equity valuation

The summit adds a separate geopolitical and technology-policy channel.

15. Final Fundamental Assessment

The score declines from the prior session because the 10-year Treasury yield moved above 5.1%, oil rebounded sharply, business input-cost inflation accelerated and the probability of further Federal Reserve tightening increased.

The strong earnings baseline and calm broad-credit market prevent a more negative reading.

Fundamental Bias for the Current Session

Neutral to moderately negative.

Support:

• strong aggregate earnings expectations;
• forward valuation below earlier levels;
• tight broad-credit spreads;
• resilient economic activity.

Constraints:

• 10-year Treasury yield above 5%;
• renewed oil inflation;
• stronger input-cost pressures;
• increased probability of further rate hikes;
• narrow equity leadership;
• U.S.–China summit event risk.