Observations

Financial Markets Review

U.S. equities extended their winning streak in September, marking another strong month for the markets. The S&P 500 advanced 3.53%, the Nasdaq Composite surged 5.61%, and the Russell 2000 climbed 2.96%, breaking above its November 2021 record high. For the S&P 500, it was the fifth consecutive monthly advance, and for the Nasdaq, the sixth, reinforcing a powerful upward trend since the Liberation Day trough. The performance of the equal-weight S&P 500 told a different story, as it trailed the cap-weighted index by nearly 300 basis points, underscoring that the rally remains dominated by large-cap growth names rather than broad-based participation. The continued dominance in technology related companies was evident last month by the concentration in performance amongst sectors with Technology rising 7.21% and Communication Services gaining 5.53%. The only other sector to outperform the S&P 500 was Utilities advancing 3.98%, while more defensive and value-oriented corners of the market lagged behind. This continues a pattern that has defined the strength in the broader market over the past few years.

The month’s upside was fueled by a confluence of factors – supportive economic data, a dovish turn from the Federal Reserve, and continued investor enthusiasm around the AI theme. The Citi Economic Surprise Index climbed to its highest level of the year as economic reports generally exceeded expectations. The August retail sales report painted a picture of a resilient consumer continuing to spend even as consumer goods prices continue to rise. On the corporate side, the durable goods and industrial production reports highlight improving business investment. None of the reports show an economy growing gangbusters, but rather one that remains on firm footing. While the August payrolls report underwhelmed, showing fewer jobs added than expected, and the September ADP payrolls declining by 32k jobs along with revisions to August showing a slight loss in jobs, there hasn’t been too much concern over the weakening labor market. The biggest reason for this is the relatively low level of initial jobless claims leading many to characterize the labor market as a “no-hire, no-fire” environment. As long as layoffs remain muted, the economy can certainly muddle along.

Nowhere was investor exuberance more evident than in the AI complex, which once again dominated headlines and drove major indices to new highs. Intel (INTC) surged 37.8% after Nvidia (NVDA) disclosed a $5 billion investment, accompanied by reports that Apple was considering its own stake. NVDA also announced plans to invest up to $100 billion in OpenAI, while Oracle (ORCL) announced a commitment of $300 billion from OpenAI. On the announcements, NVDA added another $160 billion to its market cap and ORCL saw its shares explode higher by 24.4%. These outsized moves underscore the degree to which the AI secular growth narrative continues to anchor the bull case for equities. Yet the same developments have invited growing skepticism. NVDA’s massive commitment to OpenAI to support datacenter buildouts and, in turn, ORCL’s need to buy NVDA’s chips to supply the computing power for OpenAI’s cloud services contract with ORCL, have ignited concerns about “circularity” in the ecosystem. The idea that chipmakers are funding their own demand by financing customers who use the capital to purchase their products has drawn comparisons to dot-com era vendor financing, when companies acted as investors, suppliers and customers of one another. The biggest risk, as was the case during the dot-com crash, centers around demand and profits not materializing. As Elon Musk succinctly pointed out on X:

“Big question is whether the infinite money glitch lasts until the infinite money AI genie arrives…” – Elon Musk, 9/23/2025

For now, momentum is on the side of the bulls, as the S&P 500 continues to march higher. The economy’s durability has allowed the Fed to pivot without fear of an imminent recession. The labor market is softening but not collapsing, inflation is easing but not enough, and corporate earnings have held firm even as valuations remain stretched. This delicate balance is what makes the current phase of the cycle particularly tricky. The conditions fueling this rally—narrow leadership, record-tight credit spreads, and speculative fervor in key growth sectors—have historically preceded periods of adjustment. The challenge for markets going forward is whether the current mix of growth, liquidity, and confidence can persist without tipping into excess, because the margin for safety is indeed quite slim given current valuations.



Source: Bloomberg

Tandem Strategy Update*

Despite the S&P 500’s strong monthly returns, there has been a massive divergence underneath the surface. For several months now, we have touched on the growing relative performance gap between the S&P 500 and the equal-weight S&P 500 and the same can be said for growth stocks relative to value stocks. Since the Liberation Day trough roughly 6 months ago, the trend has overwhelmingly favored high-beta, momentum driven stocks over low-beta, low-volatility stocks. Since the beginning of April, the Invesco S&P 500 High Beta ETF (SPHB) has increased roughly 68% versus a 7% return by the Invesco S&P 500 Low Volatility ETF (SPLV). And over the past month, the SPHB has risen nearly 8%, while the SPLV has declined roughly 1%.



Source: FactSet



Source: FactSet

Today, investors are enamored with growth, technology and momentum. The last time value and low-volatility equities were shunned to this extent was around the end of 2021 and the dot-com bubble when investors dismissed valuation discipline in favor of innovation and momentum. As we know from the dot-com era, once the cycle reversed, there was a multi-year period of outperformance amongst the low-volatility, dividend growth and value strategies.



Source: FactSet

In the meantime, as quality companies with solid fundamentals get thrown out for the highest-beta and momentum driven names, we have found plenty of opportunities to add to core positions at attractive valuations and establish new positions along the way. Over the past month, we added to our core positions in Roper Technologies (ROP), Brown & Brown (BRO) and Genpact (G) across all three strategies. Within our Large Cap Core and Equity strategies, we added to Intuit (INTU), which we first incepted in August. And in our Equity and Mid Cap strategies, we continued to add to Adobe (ADBE) and MSCI (MSCI), respectively.

Within our Equity strategy, we had the opportunity to take a new position in Fortinet (FTNT). Fortinet is a global cybersecurity company headquartered in California. They develop solutions to enhance security and help organizations protect their digital environments through hardware, software, user credentials, and system configurations. Some of their key products include the Fortinet Security Fabric, a comprehensive security platform where all of Fortinet’s security products work together, and the FortiGate Next-Gen Firewall, which is the most deployed network firewall with over 50% of global market share. Since FTNT went public in 2009, they have exhibited remarkably consistent growth of revenues, earnings and cash flows.

*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

Source: Source of all data is FactSet, unless otherwise noted.