Portfolio Manager Commentary

September 1, 2025

Economic Outlook

The U.S. Leading Economic Index declined slightly in July to 98.7, marking the eighth consecutive month with a decrease or an unchanged reading for the index. The ISM Manufacturing PMI increased to 48.7 in August; however, the index indicates an ongoing contraction in the manufacturing sector. Industrial Production rose 1.4% year-over-year in July, the highest annual change since January. The University of Michigan Consumer Sentiment Index posted a final reading of 58.2 in August, down from 61.7 in July. The 5-Year Breakeven Inflation Rate stood at 2.47% as of September 1, pointing to stable medium-term inflation expectations. Capacity Utilization edged down to 77.5% in July, in line with expectations. Average hourly earnings rose 0.3% in July and 3.9% year-over-year. The NAHB Housing Market Index fell to 32 in August, remaining well below its historical average. The average interest rate for a 30-year fixed-rate mortgage was approximately 6.56% as of August 28.

Fixed Income

Following Chair Powell’s Jackson Hole remarks, markets now assign roughly an 85% probability of a 25 bp cut at the September 16–17 FOMC meeting. The current FOMC target rate remains at 4.25%-4.50%. The 2-year Treasury yield is near its lowest level since October 2024, as future rate cuts are priced in. Meanwhile, the 10-year Treasury yield remains rangebound, as it has traded between 4.0% and 4.6% nearly the entire calendar year. Credit conditions appear to be strong. The Moody's Seasoned Baa Corporate Bond yield relative to the 10-year Treasury yield is currently at a spread of 1.74%. Likewise, the spread between the ICE BofA US High-Yield Index yield relative to the 10-year Treasury yield sits at the lowest level on record.

Yield Curve

Current Generic Bond Yields

Equity

U.S. stocks remain near all-time highs with the S&P 500 trading at 6415. Breadth for the index is still strong, as roughly 62% of its stocks trade above their 200-day moving average. Earnings support remains a tailwind—about 81% of S&P 500 companies beat EPS estimates for Q2. This year, the equalweight S&P 500 index total return (+7.73%) continues to trail the market cap-weighted index total return (+9.90%).

In 2025, the best performing U.S. sectors have been Communication Services (+17.91%), Industrials (+16.12%), and Information Technology (+14.04%). The worst performing sectors have been Health Care (+0.81%), Consumer Discretionary (+2.02%), and Consumer Staples (+5.54%). On a total return basis, the Russell 1000 Growth Index has returned 11.33% year to date, while the Russell 1000 Value Index has increased 10.01% over the same period.