Staying Disciplined Amid Mixed Signals
For some clients enjoying fall’s arrival—crisp air, changing leaves, and pumpkin-spiced everything—Arizona remains sizzling. We’re still enduring triple-digit heat and a monsoon storm that toppled trees across the Valley.
It’s a fitting metaphor: regional differences define how we experience the season—and today’s economy does the same. Some signals are cooling, others still warm, and many remain unsettled.
Here’s what’s shaping the picture—and what it might mean for your portfolio.
The Fed Eyes 2026 Rate Cuts
The Federal Reserve held rates steady again this month. Markets are weighing what comes next. Analysts at J.P. Morgan anticipate as many as four rate cuts by early 2026, potentially lowering the federal funds rate to around 3.25%–3.50%. These moves are typically in response to easing economic pressure—not strength.
Inflation Held Steady—Still Above Target
New inflation numbers reveal that headline PCE inflation remains at 2.6% year-over-year, while core PCE inflation (excluding food and energy) ticked up to 2.9%—marking its fourth straight monthly increase. This underscores that underlying inflation pressures remain persistent, especially in services sectors. Despite this, some Fed officials are signaling that rate relief may still be warranted if broader economic activity continues to soften. [1]
Q2 GDP Rebounds More Than Expected
The U.S. economy grew at a 3.3% annualized rate in Q2, revised up from 3.0%, amid strong consumer spending, corporate profits, and a sharp 29.8% decline in imports that mechanically boosted GDP. Profits rebounded sharply by $65.5 billion. However, economists caution that the import-driven lift may not indicate a sustainable trend. [2][3][4]
Leading Indicators Signal Moderate Weakness
Despite the stronger GDP print, the Leading Economic Index (LEI) fell 0.1% in July, now down 2.7% over six months—suggesting underlying momentum remains soft. If this directional trend continues, it may provide additional justification for the Fed to pivot.
Tariffs: A Mixed Bag
Tariffs continue to present both opportunities and challenges. Some domestic industries benefit from protection, while others struggle with higher costs. The Conference Board still expects U.S. GDP growth to soften from 1.6% in 2025 to 1.3% in 2026, with tariffs contributing to this drag. Like a sudden monsoon, tariffs can dampen growth in certain areas while buoying others.
Markets Remain Resilient—But Valuations Are Elevated
Equity markets still look strong even as fundamentals cool. J.P. Morgan’s fair-value estimates suggest the S&P 500 is about 15% above fair value, even as analysts forecast over $500 billion in equity inflows in H2 2025 from retail and foreign investors—keeping liquidity robust.
What Does This Mean for You?
At Strategic Income Group, we believe clarity doesn’t come from chasing headlines, but from disciplined planning. Here are thoughtful strategies to consider in the current environment:
- Strategic rebalancing may be worthwhile given elevated valuations—shifting exposure across buckets to align with risk and opportunity.
- If you’re RMD-eligible, consider taking your distribution now while asset values remain elevated.
- Given the stickiness in core inflation, rate cuts may be more gradual—senior clients or those with borrowing needs may want to monitor for opportunities.
Unless your personal goals or circumstances have shifted, there’s likely no urgent action needed. But if you’d like to reassess rebalancing or positioning amid changing conditions, we’re here to support you.
Looking Ahead
We’ll keep watching:
- Fed’s cues on rate policy and cuts
- Trends in the LEI and broader economic indicators
- Tariffs’ sector-by-sector impact
- Equity valuations vs. capital inflows
Just as Arizona’s autumn looks different than in other places, today’s economic climate presents varied signals. The real reassurance? Knowing your strategy is grounded and built to navigate uncertainty.
References
- The subtle rate cut case, Axios (August 29, 2025) – PCE and core PCE inflation details and Fed commentary.
- US economy grows 3.3% in Q2 2025…, IndiaTimes (August 28, 2025) – Q2 GDP revised figures.
- US corporate profits rebound in second quarter…, Reuters (August 28, 2025) – Corporate profit and import details.
- Gross Domestic Product 2nd Quarter 2025 (Second Estimate) and Corporate Profits, BEA – Profit rebound statistics.
Compliance Disclosures
This content is intended for informational purposes and should not be considered tax, legal, or investment advice. Economic commentary reflects conditions as of the date above and may change. Past performance is not indicative of future results.
Strategic Income Group is an SEC-registered investment adviser. Registration does not imply a certain level of skill. For details on our services, fees, or Form ADV, please contact us or visit www.adviserinfo.sec.gov.more information about our firm, including our services and fees, please refer to our Form ADV, which is available upon request or at www.adviserinfo.sec.gov
