By Ben Norris, Senior Vice President, Senior Investment Strategist
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The three major U.S. stock indices fell last week, with the S&P 500 (S&P), Nasdaq Composite and Dow Jones Industrial Average declining 0.31%, 0.65% and 0.15%, respectively. Markets kicked off the week with each index setting a record high on Monday, but mixed economic data, a new focus on return on investment for artificial intelligence (AI) projects and concerns that valuations are too high weighed on stocks for the remainder of the week. Despite the sell-off last week, domestic stocks remain on a resilient march higher in 2025. The S&P has gained in six of the last eight weeks and is up nearly 13% year-to-date, and 33% since April lows.
Monday’s rally was fueled by AI optimism, led by NVIDIA after it committed to a $100 billion investment in OpenAI, one of its largest customers. While some investors cheered the move, sending NVIDIA’s stock higher, others questioned if the investment could be a case of circular financing. The deal will help OpenAI build out at least 10 gigawatts of computing power relying on NVIDIA’s systems. In a joint announcement, the companies said the investment will happen “progressively” as OpenAI continues to build out infrastructure to support its growing user base and increasingly complex AI models. Those who questioned the deal pointed to the possibility that NVIDIA is essentially giving money to OpenAI so that it can turn around and spend that money on NVIDIA’s products.
This sort of vendor financing relationship isn’t new to the industry; many companies provide early financing based on the expectation that their customers will grow over time and eventually self-fund capital expenditures in excess of the original investment. However, the increasing size and frequency of these deals does raise concerns that the current level of investment in AI won’t be supported by future revenues. Last week, consulting firm Bain & Co. released an analysis outlining the possibility of this scenario. According to Bain’s analysis, AI companies will need to generate $2 trillion in combined revenue to fund the computing power needed to meet demand. However, the ability to monetize AI tools remains uncertain, and Bain estimates that revenue could fall short by $800 billion in 2030. Their analysis also indicates that AI demand will strain global supply chains as power infrastructure isn’t currently sufficient to meet expected demand.
Tuesday’s session saw NVIDIA and the rest of the market give back much of Monday’s gain as the technology sector experienced broad weakness. Away from stocks, S&P Global released an update to its U.S. Flash Purchasing Managers’ Index that showed slowing business activity in September. Both services and manufacturing activity saw growth—it came in at a slower pace than prior months, and each sector saw a slowdown in hiring. Cautious hiring activity underscores the level of uncertainty that businesses are facing from tariffs, policy uncertainty and mixed economic data. However, confidence in the outlook improved, as expectations of lower interest rates helped offset anticipated impacts of tariffs. Another factor that likely weighed on investors Tuesday was the growing possibility of a government shutdown. Republican and Democratic lawmakers haven’t been able to reach an agreement to extend funding beyond the September 30 deadline, and the odds of an October 1 shutdown are rising. The good news is that while government shutdowns can weigh on markets in the short-term, they don’t typically have a lasting impact on returns.
Wednesday saw another move lower for U.S. stocks as the technology sector once again stumbled. A Tuesday afternoon speech from U.S. Federal Reserve (Fed) Chairman Jerome Powell sparked a move lower that continued through Wednesday’s session. Most of Powell’s remarks were focused on reinforcing the recent Fed talking points—the central bank remains data-dependent as the economy is resilient despite headwinds from inflation and a cooling job market. Powell maintained a cautious posture toward further rate cuts, emphasizing the need to avoid cutting too aggressively and risking a resurgence in inflationary pressure. The key, potentially unintended, takeaway from the speech was a comment acknowledging that equity markets are highly valued. It is rare for a member of the Fed to so directly speak to market dynamics, and Powell’s comment was quickly seized by bears who argue that markets are due for a pullback from current levels.
Thursday saw stocks fall for a third consecutive session, with the technology sector once again lagging. The final estimate of second-quarter U.S. gross domestic product (GDP) growth exceeded consensus expectations by a significant margin. The annualized growth rate came in at 3.8%, well above the consensus forecast of 3.3%, driven by strong consumer spending. Additionally, the surge in imports observed in the first quarter—largely due to firms stockpiling inventories ahead of potential tariffs—reversed in the second quarter, providing further support to growth. Looking ahead to the third quarter, the Atlanta Fed’s GDPNow model is currently projecting a strong 3.3% annualized growth rate, again fueled by robust consumer spending. In other economic data, U.S. jobless claims came in lower than anticipated, a reversal of the elevated reading seen two weeks ago and counterpoint to the weak August employment report.
Markets finished higher on Friday after the Fed’s preferred measure of inflation came in line with expectations, but at its highest level in six months. Core personal consumption expenditures (PCE) inflation, which removes the impact of volatile food and energy prices, remained at 2.9% annualized in August, while headline inflation rose 2.7% from a year earlier. Services inflation continues to outpace goods inflation despite concerns that tariffs would cause a tick up in the latter. Prices for goods are up just 0.9% from a year ago, compared to a 3.6% increase for services. Shelter inflation remains the primary culprit, pushing services inflation above target, with costs up 3.9% year-on-year. The September reading of consumer sentiment fell for the third straight month as survey respondents cited concerns about inflation and job-market weakness. Despite falling sentiment, recent data tied to consumer activity indicates that most Americans are in fairly good financial shape and continue to spend at levels that will support economic growth.
Looking forward to this week, we have a busy calendar of economic reports, including a slew of employment data, several Fed speakers and a few key pieces of housing data.
Economic Calendar Sept. 29 to Oct. 3
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, SEPT. 29 | ||||
| 7:30 am | Federal Reserve governor Christopher Waller speech | |||
| 10:00 am | Cleveland Fed President Beth Hammack speech | |||
| 10:00 am | Pending home sales | Aug. | 0.0% | 0.4% |
| 6:00 pm | Atlanta Fed President Raphael Bostic speech | |||
| MONDAY, SEPT. 30 | ||||
| 6:00 am | Federal Reserve Vice Chair Philip Jefferson speech | |||
| 9:00 am | S&P Case-Shiller home price index (20 cities) | July | — | 2.1% |
| 9:45 am | Chicago Business Barometer (PMI) | Sept. | 43.0 | 41.5 |
| 10:00 am | Job openings | Aug. | 7.1 million | 7.2 million |
| 10:00 am | Consumer confidence | Sept. | 95.8 | 97.4 |
| 1:30 pm | Chicago Fed President Austan Goolsbee speech | |||
| WEDNESDAY, OCT. 1 | ||||
| 8:15 am | ADP employment | Sept. | 40,000 | 54,000 |
| 10:00 am | Construction spending | Aug. | -0.2% | -0.1% |
| 9:45 am | S&P final U.S. manufacturing PMI | Sept. | — | 52.0 |
| 10:00 am | ISM manufacturing | Sept. | 48.9% | 48.7% |
| TBA | Auto sales | Sept. | — | 16.1 million |
| THURSDAY, OCT. 2 | ||||
| 8:30 am | Initial jobless claims | Sept. 27 | 228,000 | 218,000 |
| 10:00 am | Factory orders | Aug. | 1.5% | -1.3% |
| 10:30 am | Dallas Fed President Lorie Logan speech | |||
| FRIDAY, OCT. 3 | ||||
| 8:30 am | U.S. employment report | Sept. | 45,000 | 22,000 |
| 8:30 am | U.S. unemployment rate | Sept. | 4.3% | 4.3% |
| 8:30 am | U.S. hourly wages | Sept. | 0.3% | 0.3% |
| 8:30 am | Hourly wages year over year | 3.6% | 3.7% | |
| 9:45 am | S&P final U.S. services PMI | Sept. | — | 53.9 |
| 10:00 am | ISM services | Sept. | 51.7% | 52.0% |
| 1:40 pm | Federal Reserve Vice Chair Philip Jefferson speech |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market