IPOs rise as the labor market weakens
Summary
Last week kicked off with a bang as the S&P 500, Nasdaq, and Dow Jones all hit record highs Monday, fueled by Nvidia’s announcement of a $100 billion partnership with OpenAI, though the euphoria faded as the week progressed. GDP growth was revised upward to 3.8%, jobless claims dropped below expectations to 218,000, and durable goods orders surged 2.9%, far exceeding forecasts. These bullish indicators suggest the economy remains resilient, which paradoxically weighed on equities as investors—hoping for earlier and deeper Fed rate cuts—reassessed the likelihood of near-term policy support.
On Friday, the Core PCE Index ticked higher, reinforcing concerns about sticky inflation and delaying hopes for aggressive easing. Market futures continue to anticipate a 25 basis point (bp) rate reduction at each of the two remaining Federal Reserve meetings this year. The week was a tug-of-war between strong economic data and shifting monetary expectations, leaving markets slightly lower.
The S&P 500 dipped 0.3% on the week, while the Nasdaq, with AI darling stocks taking a breather this week, fell 0.7%. The blue-chip heavy Dow dipped 0.1%. For context, September is typically the weakest month of the year for equities, with the market declining by an average of 68 basis points (data since 1950). Given the context, this month’s 2.9% gain for the S&P 500 brings some comfort, with the year-to-date return reaching 14.1%.
IPO & M&A heating up
Per an analysis by Goldman Sachs, so far in 2025, we’ve seen 46 IPOs totaling $24 billion in gross proceeds, an 18% jump from last year. The average first-day IPO return or “pop” is 30%, making this one of the best years for first-day pops since the dot-com era. Most IPOs this year are large, with an average market cap of $2 billion, partly because of a backlog after three years of low activity. Health Care, Tech, Media, Telecoms, and Financials dominated recent IPOs.
M&A is also back in a big way: deal value is up 29% year-over-year, with more large transactions and a healthy pipeline for 2026.
Fed Chair Jerome Powell remarks
Federal Reserve Chair Jerome Powell, speaking in Rhode Island, continued his post-FOMC tone that the U.S. labor market is losing steam. He noted that job growth is now running below the “breakeven” rate needed to keep unemployment steady, even though the jobless rate remains low and most labor indicators are stable. Powell warned that “downside risks to employment have risen,” and described the labor market as “less dynamic and somewhat softer,” even seeing “meaningful weakness” in recent data.
On inflation, Powell said it’s still “somewhat elevated,” partly due to higher tariffs, which are causing a gradual, not sudden, rise in prices. He suggested that these tariff-driven price pressures will play out over several quarters and may be slowing hiring at some companies. Still, he pointed out that disinflation in services is ongoing and long-term inflation expectations remain anchored near the Fed’s 2% target.
Powell described current Fed policy as “modestly restrictive,” cautioning that keeping rates high for too long could hurt jobs, while cutting too soon could reignite inflation. He hinted that markets are anticipating the Fed’s next moves, with rate changes priced in ahead of official decisions.
The week ahead
This week’s economic calendar includes a slew of data updates, including pending home sales on Monday, JOLTS on Tuesday, a manufacturing PMI on Wednesday, and initial jobless claims on Thursday. Fed leadership speeches will continue throughout the week.
U.S. Treasuries
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SONIA
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