9-9-25: Digesting Slack Labor Markets and AI Amid Record Gold and Stock Prices

by Bryan Perry

September 9 , 2025

Currently, the market for stock and bond investments is on good footing and, in my view, this will only improve in the weeks and months ahead. That’s because there is a confluence of metrics at work that play right into a bullish continuation of this rally in bonds and stocks – following some consolidation.

First, there is a rising expectation of two or three Fed rate cuts by year-end, following the soft jobs report last Friday that clearly shows a new slack in the labor market. That follows a trend of prior downward revisions, some quite sobering: June was revised from +27k to -13k, the first negative number since 2020. July’s modest upward revision softened the blow, but the three-month average fell to just 29,000, down from 168,000 a month in 2024. August’s initial total of +22,000 was well below expectations of 75,000.

Bond yields fell on the employment data, so the table is set for lower interest rates going forward, a major tailwind for both stocks and bonds. It would not surprise me, or most economists, if the next employment report (for September) showed another negative number. As a result of these labor realities, there are several calls for a 50-basis point cut at the upcoming FOMC meeting scheduled for September 17.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A second catalyst is that profit growth is struggling around the world, even while analysts are raising estimates for S&P 500 earnings. The second and third quarters each proved to be remarkably strong earnings seasons, with sales averaging a 6% rise and profits up 12% sequentially, which is more than twice the original estimate of 4.8% growth. This is also an amazing time for investors to have exposure to the AI revolution. The “Magnificent 7” tech giants posted earnings growth above 25%, lifting the index disproportionately. Also, over 81% of S&P 500 companies reported positive revenue surprises in Q2.

For Q3, the estimated year-over-year earnings growth rate for the S&P 500 is 7.5%. If 7.5% is the actual final growth rate for the quarter, it will mark the ninth consecutive quarter of earnings growth for the index. However, the likelihood that this estimate will be on the light side is also high. Forecasts for earnings growth rates are 7.2%, 11.5%, and 12.3% for Q4 2025, Q1 2026, and Q2 2026 (respectively). That means slower growth for the balance of 2025 and then a re-acceleration over the first half of 2026.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

AI is a real force in cost savings and productivity gains. According to FactSet, “Artificial intelligence has been a focus topic for the market for several quarters now. Given the heightened interest, more S&P 500 companies than normal commented on “AI” during their earnings conference calls for the second quarter. Overall, the term “AI” was cited on over half (287) of earnings calls conducted by S&P 500 companies during this period. This number is well above the 5-year average of 124 and the 10-year average of 79.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

AI is being universally applied across all industries and sectors of the economy, driving higher levels of efficiency and productivity, which leads to higher profitability. At the sector level, 10 of the 11 S&P 500 sectors recorded an increase in the number of earnings calls citing “AI.” I look for the third quarter reporting season (starting in early October) to also top estimates, given the momentum of implementing AI at all levels of business. AI is definitely living up to its promise as a generational transformation force.

Overall, the market is entering a period of corporate prosperity, coupled with fresh uncertainty about the effect that AI will have on the rate at which it replaces workers, as well as some early forecasts about lower consumer spending this holiday season. So far, this has hardly put a dent in travel and consumer discretionary stocks, which makes sense, given the fact that the U.S. is a consumer-driven economy.

With that said, the U.S. economy now accounts for 25% of global GDP, making it like an aircraft carrier that takes five miles to make a complete stop. There will be plenty of warning signs for the Fed to lower rates and ramp up stimulus if necessary. The “big, beautiful bill” and the trillion dollars of re-shoring announced by big tech at the White House last week is a powerful long-term catalyst for the economy.

Corporate Financials are on Solid Ground –

Unlike the Federal Government’s Finances

While there will certainly be some anxiety at the local level, with massive occupational changes taking place, the stock and bond markets care most about strengthening balance sheets and rising sales and profits. Corporate America’s financials are on solid ground – while the government’s balance sheet is not.

It is a bifurcated market for sure, but one that will likely be won by those who remain invested. Assuming tax receipts from a strong economy come in at a healthy rate, and tariff revenues go toward paying down the federal debt, only then can we hold an adult conversation about meaningful deficit reductions in DC.

Treasury Secretary Scott Bessent appears genuinely committed to debt reduction, and not just rhetorically. His fiscal posture is anchored in what he calls a “detox” for the U.S. economy, since he says we have become addicted to government spending. His “Mr. Smith Goes to Washington” approach has been tried before, but sadly, to date, austerity has proven to be just too painful for our elected officials.

Bessent has said on multiple occasions that government overspending is “what got him out from behind his desk” to serve in government. Jens Nordvig, founder of research firm Exante Data, said, “The primary motivation for Scott to want this job is I think he wants to have a legacy of having improved the debt dynamics of the United States.” The GOP controls the White House, House and Senate. If Bessent wants to create a legacy and crush the gold price, he will have to win over a lot of hearts, minds…and votes.