September Market Outlook: Breadth, Tariffs, and the Fed’s Next Move

What September Means for Markets, Tariffs, and the Fed

August delivered another strong leg higher for equities, with small caps leading the way. That is a bullish sign for the broader market. The S&P 500 has rallied 25% off its lows this year, and importantly, the rally has been supported by expanding market breadth. That means more stocks are participating, not just the big names. Historically, this kind of strength under the surface points to resilience, even if we hit a short-term pullback.

Tariffs, Taxes, and the Legal Fight Ahead

There is no shortage of headlines around tariffs, but the reality is they have been generating meaningful government revenue, helping offset the falling corporate tax receipts over the last year, according to the latest data from the Congressional Budget Office. (https://www.cbo.gov/publication/61697)

That inflow has supported the “Big Beautiful Bill,” which delivers tax cuts across the board.

Yes, there is an ongoing legal battle over whether tariffs enacted under emergency powers can stand, but the Supreme Court will soon weigh in. Even if adjustments are required, the administration has alternative pathways under the Trade Act of 1974. For investors, the key takeaway is this: tariffs are funding tax relief, and that could mean more money in consumers’ pockets heading into 2026.

The Fed’s Pivot: Why Jobs Data Matters

At Jackson Hole, Chair Powell struck his most dovish tone in months, and that pivot traces back to weak labor data revisions. Payrolls have consistently been revised lower, raising questions about how reliable the reported jobs picture has been. If the Fed has indeed been “too tight for too long,” rate cuts could arrive sooner than expected. That would be a potential tailwind for risk assets.

A Rare Signal: 90% Breadth Day

On August 22, we recorded a 90% upside breadth day on the NYSE, meaning more than 90% of stocks advanced. This has only occurred 28 times in the last half century. History shows that one year after such signals, the S&P 500 has averaged a 22% return, with just two negative outcomes tied to the 2007 financial crisis and the 1970s recession.

Here is what the data looks like across different time horizons:

Data derived from eSignal

The probabilities are clearly in favor of continued strength, even if we get near-term overbought conditions.

September Seasonality and Looking Ahead

September has the reputation of being the weakest month for stocks, but strength in prior months usually dampens the risk. When June, July, and August are positive, September often ends flat to slightly up. Historically, that strength carries forward into year-end, with the lone exception of 2018’s Fed-driven selloff.

What Could Go Wrong?

Two risks remain on my radar:

• Bond issuance and deficits. If tariffs are struck down without a backfill, Treasury issuance could spike and pressure yields higher.

• Rotation risk. The rally cannot rely forever on Microsoft, Nvidia, or Amazon. Encouragingly, we are now seeing Apple and Google find some support.

  
  

Still, with breadth improving, small caps rallying, and consumer tailwinds forming, we see weakness as an opportunity to potentially put some cash to work.

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