Markets Keep Climbing — Here’s What It Means for You

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NEWS

Markets Keep Climbing — Here’s What It Means for You

The labor market is slowing, but markets keep climbing.

Here’s what that means for your portfolio.

This week, we learned that:

• Nonfarm payrolls increased only 22,000 in August, well below expectations of 77,000.

• Excluding government, education & health services, and leisure & hospitality (which are heavily influenced by government action), what First Trust terms “core payrolls” actually dropped 36,000 in August.

• Producer prices showed a surprising 0.1% decline in August (both with and without the more volatile food and energy prices included).

• Despite the Fed’s concern over rising prices of goods due to tariffs, Total Final Demand Goods have only increased approximately 0.4% at an annualized rate during the past six months. Services are up 1.6% annualized over that same period. Both of these reflect a normalized inflation environment.

• The Shiller P/E ratio is approximately 25% above its 10-year historical average.

How I See It

Markets are high right now.

But here’s the thing—that doesn’t predict the timing of the next downturn.

In mature bull markets (generally 3+ years in), valuations can remain elevated for long periods, sometimes years, without triggering a 20%+ decline. Some of the strongest returns often happen in the latter years of a bull market—and those are important to capture!

Market timing is rarely appropriate in a risk-managed portfolio. You don’t have to time the market in order to achieve your goals. Timing the market actually adds extraordinary long-term risk of underperforming market averages and not reaching your goals on time.

Here is the good news:

• Upward momentum is strong.

• The Fed has plenty of room to inspire optimism for future rate cuts.

• Inflation appears to continue normalizing.

• AI remains a generally positive outlook for increased productivity.

Here are the challenges:

• Markets are already reflecting this optimism in the price-to-earnings ratio.

• Uncertainty over tariff action or amounts remains a disincentive for business investment.

• The drop in government payrolls due to cost cutting (while possibly a long-term positive) could contribute to short-term economic slowdown.

• AI’s impact is still uneven, with productivity gains in some industries offset by disruption in others.

• The second year of a US President’s term has resulted in the weakest average annual return historically (though still positive), which matters as 2026 approaches.

In Summary

While challenges remain, the conditions appear solid enough that markets could continue to climb modestly over the next 12 months. Not without the probable pullbacks (5%-10%) or corrections (10%-20%), but in aggregate.

Unless there is a major disruption to world trade, I see the odds tilted toward modest gains (perhaps in the mid-teens range) over the next 12 months. Downside risk appears more limited in its probability, though a single-digit net negative over the next 12 months is still within the realm of reasonable future movement.

Investing is about weighing odds, not predicting certainties. You will win some and lose some, but over time the goal is for wins to outweigh losses. The best way to tilt the odds in your favor is through a risk-appropriate allocation — with mental preparedness and discipline to stay the course when markets inevitably wobble.

Daniel Lancaster, CFA

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