Market Indexes Stay Lower 2nd Straight Day, PCE On Deck

U.S. equity markets closed lower for a second consecutive day on Thursday, September 25, 2025, with major indices declining by 0.38% to 1.05% and bond yields continuing to rise, as investors anticipate Friday's August Personal Consumption Expenditures (PCE) report. The PCE, the Fed's preferred inflation gauge, is forecast to show core year-over-year inflation at an elevated 2.9%, matching recent highs and potentially influencing monetary policy expectations. Separately, August Existing Home Sales surged 20.5%, while Costco reported mixed Q4 results, beating EPS but slightly missing revenue, leading to a post-market share dip.

Analysis

U.S. equity markets closed lower for a second consecutive session, with the Dow, S&P 500, and Nasdaq declining between 0.38% and 0.50%, while the small-cap Russell 2000 underperformed significantly with a 1.05% drop. This broad-based weakness is occurring alongside rising bond yields, with the 10-year reaching 4.17%, as the market pauses in a catalyst-light environment ahead of key economic data. The primary focus is on the upcoming Personal Consumption Expenditures (PCE) report, the Fed's preferred inflation gauge, where expectations are for core year-over-year inflation to remain at a multi-month high of 2.9%. An upside surprise would represent the highest level since March 2024, potentially solidifying a hawkish monetary policy outlook. On the corporate front, Costco (COST) delivered mixed fiscal Q4 results, beating EPS estimates with $5.87 but narrowly missing revenue expectations at $86.16 billion, leading to a decline in its shares in late trading. Separately, August's Existing Home Sales surged 20.5% to a 4.00 million annualized rate, though this strength was concentrated in the Midwest, a region with home prices 22% below the national median.

Key Decisions for Investors

• Investors should closely monitor the upcoming PCE inflation data, as a core reading above the expected 2.9% could trigger further market downside by reinforcing the 'higher for longer' interest rate narrative.
• Given the notable underperformance of small-cap stocks and rising bond yields, consider reducing exposure to rate-sensitive and economically cyclical sectors until there is greater clarity on the inflation trajectory.
• The negative market reaction to Costco's minor revenue miss highlights a low tolerance for earnings imperfections; therefore, maintain a cautious stance on companies reporting in the upcoming season, particularly those with modest year-to-date performance.
• With markets lacking immediate bullish catalysts, it may be prudent to defer initiating significant new long positions until after the release of key inflation and employment data over the next week.