Investment Committee - September 2025

Investment Strategy in a New Policy Era

The September 2025 meeting of the Investment Committee was a productive and insightful session, marked by a deep-dive discussion into the evolving economic landscape. We focused our analysis on the significant political and monetary shifts underway, particularly the Trump administration's influence on the Federal Reserve's composition and its potential market implications. The goal of our discussion was to understand the seemingly contradictory market reactions and refine our investment strategy to best position our clients' portfolios for the coming months. We believe the insights and conclusions drawn will be invaluable for navigating the current environment.

Key Discussion Points & Market Analysis

This month, our investment committee engaged in an extensive discussion regarding the recent involvement of the Trump administration in the Federal Reserve’s composition. Members debated how installing a number of "Yes-men" on the Federal Open Market Committee (FOMC) might be viewed negatively by the market, potentially leading to lower stock prices. However, markets have actually edged higher, prompting an extended dialogue on whether we were missing something crucial.

To answer our own question from a macro perspective, the committee considered what the environment would look like with a modestly negative fiscal policy combined with a more stimulative monetary policy. On its own, the fiscal stimulus is already somewhat slowing, due to tariffs and perhaps slower growth in AI expenditure, as Nvidia suggested during its latest earnings call. However, since the Jackson Hole symposium in late August, it has become evident that we will be seeing a dovish Fed that is somewhat dismissing inflation for the time being. Moreover, we are awaiting the President's decision on the next Fed chairman, with expectations pointing to someone who would be supportive of lower interest rates. While monetary easing will provide some breathing room, tariffs and decelerating AI expenditure are likely to have a negative effect. This trend is likely to accelerate over the next few months.

Putting all of this together, we see how the economy may successfully navigate this lower-growth path. We also see the end of this period in sight, with some fairly stimulative impulses likely to emerge in 2026 if current conditions do not hold up. A key sub-question for our firm, KM Cube, is whether inflation will get bad enough to unlock some unforeseen consequences.

Valuation, Positioning, and Risk

Equity valuations are currently expensive, but we understand the Trump administration's desire to run stocks as hot as they can. Furthermore, betting on valuation reversion has been a losing trade since the financial crisis of 2008. While we are still finalizing our positioning and asset allocation, we propose to lean towards assets that perform well in an inflationary regime that is not affected by a Fed reaction to hike rates. Value stocks with low debt-to-equity ratios may be a good example of this.

A significant drawback of our scenario analysis is that when we attempt to determine a fair value for the S&P 500, we arrive at a range of 5300-5750. The majority of the committee suggested that we should all take a moment to be grateful for the gains each investor has made in this multi-year bull market and begin considering taking some chips off the table.

Conclusion

The September meeting underscored the complexity of the current market environment, where traditional economic signals are being overshadowed by political and monetary policy shifts. While the path ahead presents challenges, our committee remains committed to a proactive and well-reasoned investment approach. We will continue to monitor the interplay between fiscal and monetary policy, inflation trends, and corporate earnings to ensure our portfolios are positioned for both resilience and growth. The recommendation to consider taking some profits reflects our prudent approach to managing risk and locking in the significant gains accrued over the past few years. We will provide further updates on our specific asset allocation recommendations in the coming weeks.

Authors: John Couletsis and Kostas Metaxas