Published September 5, 2025
Not a day goes by that we don’t read some market observer commenting about how expensive the stock market is. Yet stocks have kept pushing higher. Why? The note below from Blackrock shows that the rise in U.S. growth stocks this year has been substantially the result of rising earnings. The increase in valuation (e.g. making stocks more expensive relative to their earnings) has been modest. Also of note, small cap stock valuations have not increased at all.
The surge in non-U.S. stock indexes has been about half related to increasing valuations and half from the decline in the U.S. dollar. The dollar has fallen -12% this year. However, much of that drop has been simply a return of the fourth quarter 2024 surge.
See Blackrock’s summary analysis below the chart.
Market Update
The month of September has a poor track record for stock market investors. It is the only month of the year with a negative median return. The month opened Monday with long-term Treasury yields popping to near 5% and stocks moving lower. The damage was minimal, however, with the Nasdaq down -0.8%. The negative tone continued Tuesday with courts calling the Trump tariffs into question. The uncertainty left stocks lower by -0.6%. Adding to the negative tone was a selloff in global bonds Tuesday. Global bond yields are at decade high levels pressuring government spending plans. Wednesday brought welcome relief when a U.S. court ruled in the antitrust case against Alphabet/Google. The leading search engine provider managed to avoid the worst case scenario of having to sell its Chrome browser. The news pushed the stock higher by +9% in a big relief rally with the follow-on effect of benefitting Apple shares. Those two market heavyweights powered a +1% Nasdaq rally. Stocks added to the gains Thursday as investors looked to earnings from Broadcom after the close and Friday’s monthly jobs report. The report was expected to offer guidance on the magnitude and likelihood of Federal Reserve rate reductions. Broadcom blew away earnings estimates propelling the stock to a +9% gain Friday. The jobs report was weak for the fourth straight month sending interest rates tumbling further with short-term rates hitting their lows for the year. Stocks opened higher on the news but immediately gave back the gain. The jobs report weakness was greater than expected hinting at larger cracks in the labor market that concerned analysts. The S&P 500 closed down -0.37% with financial shares suffering a major reversal to a -1.8% downdraft.
The first week of September brought lots of back and forth but left the S&P 500 higher by +0.26%. The Nasdaq 100 (QQQ) rose +0.90% to remain within its trading channel of the past four weeks. Small cap stocks continue to benefit the most from falling interest rates. The index logged another +1.03% gain this week, its fifth straight weekly rise.
Warm wishes and until next week.