Fundamental Analysis

1. Main Fundamental Diagnosis

September 25 reinforced the market’s current central tension: economic activity remains firm, but the price of capital is exceptionally high.

Core non-defense capital-goods orders excluding aircraft rose 1.6% in August, compared with consensus expectations of approximately 0.5%. July was revised higher to +0.6%. Core capital-goods orders were 10.6% above year-earlier levels.

Shipments of core capital goods, which feed into business-equipment investment in GDP calculations, rose 0.6%.

The data are consistent with continued strength in AI-related infrastructure investment and broader business equipment spending.

At the same time, Treasury yields remained near multi-decade highs and consumer inflation expectations increased.

2. Fundamental Dashboard

3. S&P 500 Earnings

The approved earnings baseline remains strong.

Latest approved aggregate estimates:

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

No newer comparable aggregate earnings update identified on September 25 superseded those approved figures.

AI-related heavyweights remain responsible for a substantial portion of the increase in aggregate earnings expectations.

4. Fundamental Earnings Breadth

The earnings backdrop remains stronger than the equity-breadth backdrop.

Large technology and AI-linked companies continue to contribute disproportionately to index earnings and market performance.

September 25 reinforced this concentration. Microsoft rose approximately 3.7%, Qualcomm approximately 4%, Dell approximately 5%, and Akamai approximately 3.2%, while Meta declined approximately 3.3%.

The earnings cycle remains constructive, but index resilience continues to depend heavily on a relatively narrow group of companies.

5. Market Valuation

The S&P 500 traded at just under 19 times expected earnings during the week, its lowest forward valuation since 2023.

That is a meaningful improvement relative to earlier valuation levels.

However, an earnings yield only modestly above 5% provides limited compensation relative to a 10-year Treasury yield above 5.1%.

The valuation constraint is therefore not the equity multiple alone. It is the coexistence of that multiple with unusually high risk-free yields.

6. Free Cash Flow

No new reliable daily aggregate S&P 500 free-cash-flow yield was identified for September 25.

The structural issue remains unchanged: heavy AI infrastructure investment raises the importance of cash conversion, utilization rates and return on invested capital.

Strong capital-goods orders confirm the investment cycle, but they also increase the importance of eventual monetization.

7. Equities Versus Bonds

Treasury yields remained the principal cross-asset valuation constraint.

• 10-year Treasury yield close: 5.158%
• intraday high: 5.2297%
• highest intraday level since 2007

• 30-year Treasury yield close: 5.4883%
• intraday high: 5.5319%
• highest intraday level since 2004

The ICE BofA MOVE Index rose roughly 30% over the week, its largest weekly increase since April 2025.

Long-term rates therefore remain a major source of valuation pressure even though equity indexes finished higher on September 25.

8. Credit Market

Broad corporate credit remains substantially calmer than the Treasury market and lower-quality credit.

The HYG/LQD ratio closed at approximately 0.7544, down slightly from 0.7551 but still more than two standard deviations above its one-year historical mean. The regime remains tight / risk-on.

The latest broad high-yield option-adjusted spread is approximately 2.80%.

However, CCC-and-lower option-adjusted spreads are approximately 11.12%, preserving a pronounced quality divergence.

Credit diagnosis: broad credit does not confirm systemic funding stress. The weakest issuers remain under substantial pressure, while the principal macro constraint is still long-term rates and inflation.

9. Monetary Conditions

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

Following the September 25 data, market pricing implied approximately a two-thirds probability of another 25-basis-point increase in October.

Strong business investment, still-elevated inflation expectations and high energy costs keep the monetary regime restrictive.

There is little evidence of an imminent easing cycle.

10. Macroeconomy

August core non-defense capital-goods orders excluding aircraft increased 1.6% month over month and 10.6% year over year.

Core capital-goods shipments rose 0.6%.

Overall durable-goods orders were unchanged after a revised +0.9% increase in July.

Goldman Sachs raised its third-quarter annualized GDP growth estimate to approximately 3.4% from 3.3%.

The macro signal remains one of resilient investment and demand rather than imminent contraction.

11. Consumer and Inflation Signals

Final September University of Michigan consumer sentiment fell to 48.1, a four-month low, from 51.7 in August.

One-year inflation expectations increased to 4.6% from 4.0%.

The combination is unfavorable for the policy outlook: households report weak confidence while simultaneously expecting higher near-term inflation.

This reinforces the risk that strong nominal activity can coexist with restrictive policy for longer.

12. Energy and Geopolitical Risk

Oil prices declined on September 25 as hopes for a U.S.–Iran diplomatic path increased.

The move reduced one immediate inflation impulse, but crude remained elevated and geopolitical supply risk persisted.

Reports indicated that U.S. and Iranian negotiators continued to explore a phased framework involving the Strait of Hormuz and economic restrictions.

The market transmission channel remains:

energy supply risk → inflation expectations → Fed path → Treasury yields → equity valuation

The decline in oil prices was therefore supportive, but not sufficient to remove the broader rates constraint.

13. Corporate and Trade Developments

AI-linked corporate activity remained a major positive driver:

• Microsoft: approximately +3.7%
• Qualcomm: approximately +4.0%
• Dell: approximately +5.0%
• Akamai: approximately +3.2%
• Meta: approximately −3.3%

The U.S.–China summit concluded with a more constructive diplomatic tone but no major breakthrough on the central structural issues.

For markets, the immediate result reduced some event uncertainty without resolving longer-term technology, trade and geopolitical disputes.

14. What Matters Next — Monday, September 28

Primary scheduled catalysts:

• Dallas Federal Reserve manufacturing survey
• U.S. Treasury bill auctions
• Federal Reserve communication
• Middle East / oil diplomacy
• positioning ahead of the September PCE inflation report
• positioning ahead of the October 2 U.S. employment report

The broader week is likely to focus on two linked questions:

1. whether inflation remains high enough to justify a steeper Federal Reserve tightening path;
2. whether labor-market resilience remains strong enough to absorb that tightening.

The principal market linkage remains:

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

15. Final Fundamental Assessment

The score improves marginally from the prior session because oil prices declined and business investment remained strong.

That improvement is limited by Treasury yields near multi-decade highs, weak consumer sentiment, rising one-year inflation expectations and continued expectations for another Federal Reserve increase.

Fundamental Bias for the Next Session

Neutral to moderately negative.

Support:

• strong aggregate earnings expectations;
• robust business investment;
• continued AI-related capital expenditure;
• improved forward valuation;
• tight broad-credit spreads;
• lower oil prices on the session.

Constraints:

• 10-year Treasury yield above 5%;
• 30-year Treasury yield near 5.5%;
• elevated inflation expectations;
• restrictive Federal Reserve path;
• narrow equity leadership;
• weak broad market participation;
• geopolitical energy-supply risk.