October 2, 2025 | portfolio managers' brief

Portfolio Managers’ Brief: September 2025

BY: Jason Ayres
Key Takeaways U.S. Market Leadership Canadian Market Momentum Index Performance (YTD) (September 25th , 2025) Valuation Concerns Fed Chair Powell’s Caution Technical Indicators Small-Cap Risks Central Bank Shifts Labour Market Cooling U.S. Canada Inflation & Policy Outlook Portfolio Positioning Final Thoughts

SHARE IT ONLINE:


Key Takeaways

U.S. Market Leadership

  • Year-to-date gains remain heavily concentrated in mega-cap technology, particularly the “Magnificent Seven.”
  • Alphabet, Nvidia, and Microsoft have been primary drivers, supported by strong earnings and Fed easing expectations.
  • Market breadth remains narrow, raising concerns about sustainability.

Canadian Market Momentum

  • TSX Composite has rebounded strongly, up ~20% YTD, outperforming major U.S. indices.
  • Financials and energy are leading sectors, helped by softening inflation and labour market data.
  • Early Bank of Canada rate cuts have provided an additional tailwind.

Index Performance (YTD) (September 25th , 2025)

  • TSX Composite: +20% (best-performing major North American index).
  • Nasdaq 100: +15.3%.
  • S&P 500: +11.8%.
  • Dow Jones: +8.0%.

Valuation Concerns

  • S&P 500 trading at ~23.5× forward earnings, back to 2024 highs.
  • Equal-weighted S&P also elevated at 17.7×.
  • Technology, especially the Magnificent Seven, trades at ~35× earnings.
  • Narrow leadership historically increases correction risk.

Fed Chair Powell’s Caution

  • Powell remarked that equity prices are “fairly highly valued” (Sept. 23).
  • His comments triggered profit-taking as investors reconsidered stretched valuations.

Technical Indicators

  • S&P 500 appears overbought across daily, weekly, and monthly timeframes.
  • RSI readings above 70 flag stretched conditions that could lead to volatility.

Small-Cap Risks

  • Russell 2000 rallying on rate-cut optimism, but fundamentals remain weak.
  • High leverage, shorter debt maturities, and low profitability make broad exposure risky.
  • Selectivity is essential in small-cap allocations.

Central Bank Shifts

  • Fed cut rates by 25 bps in September; signaled another cut this year.
  • BoC also cut 25 bps, bringing rates to 2.5% (lowest in 3 years).
  • Both signal further gradual easing if growth softens.

Labour Market Cooling

U.S.

  • Payrolls up only 22,000 in August; unemployment rose to 4.3% (4-year high).
  • Job growth averaging 27,000/month vs. prior strength.

Canada

  • 100,000+ jobs lost in July–August; unemployment up to 7.1%.
  • Losses broad-based across sectors, adding pressure for further BoC easing.

Inflation & Policy Outlook

  • U.S. CPI: 2.9% y/y in August; core remains sticky.
  • Canada CPI: 1.9% y/y; more room for BoC to ease.
  • Divergence: U.S. core inflation may limit Fed cuts, while Canada has more flexibility.

Portfolio Positioning

  • Trimmed equity exposure; ~5% cash raised for flexibility.
  • Remain selective in tech/communications due to stretched valuations.
  • Favor high-quality fixed income for defense and stability.
  • CFG Income Fund: maintaining put-writing strategy on U.S. Treasuries.

Final Thoughts

  • Markets remain resilient but leadership is narrow and valuations stretched.
  • Labour markets weakening adds risk to the outlook.
  • Expect higher volatility ahead as rate cuts are balanced against slowing growth.
  • Focus remains on capital preservation, selective equity exposure, and defensive fixed income positioning.

related posts