Coiled Spring Capital MW 9/17/25

We couldn’t help but think back to the classic Saturday Night Live “Hans and Franz” skit — “We’re here to pump… you up!” That’s exactly what Powell and the Fed delivered today. With a rate cut and a reaffirmation of their three-cut forecast for the year, the message was clear: policy is here to keep pumping up the economy.

For now, the market is treating it as a win. The real question is how long the cheer lasts once traders shift their focus back to growth, inflation, and positioning.

The Fed gave investors precisely what they were hoping for: a 25 bps cut, two additional cuts penciled in for 2025, and a dovish tone that leaned heavily on a softening labor market. At the same time, the Fed raised its economic growth outlook and reiterated that inflation remains well anchored.

What’s not to like? Powell gave the market exactly what it wanted. Despite an initial “sell the news” dip that pushed indexes briefly into the red, dovish rhetoric was enough for buyers to lean into weakness and bid prices back up to close near the highs.

September was supposed to be full of macro curveballs in one of the toughest seasonal stretches of the year. Instead, the market took each pitch in stride and crushed the final one out of the park.

As we wrote in our weekend report, the setup was overwhelmingly bullish — meaning it would take a negative catalyst to flip momentum. Today’s FOMC meeting wasn’t that catalyst. That doesn’t preclude a retracement once the enthusiasm fades, but it does suggest dips are likely to be shallow and supported.

Skeptics will be scratching their heads: inflation is still above target and accelerating, yet the Fed is cutting rates and projecting more cuts, all while upgrading growth and lowering unemployment forecasts. On the surface, it looks contradictory — maybe even political. But the “why” is irrelevant to us. Our job is to track the wind, and it continues to blow bullish.

As we outlined in August, our plan was to use the FOMC event to tactically trim into index targets — most of which have now been reached. That’s not a bearish shift, but recognition that the risk/reward is less favorable than it was in the summer. With the big macro events behind us, consolidation or even a modest retrenchment is a reasonable expectation. Whether that comes through a pullback or sideways digestion, the setup ahead looks more challenging.

Counterintuitive as it may sound, much of the rally since summer was in anticipation of the cut. Now that we’ve got it, digestion is in order. Indexes may tread water, but alpha should increasingly come from dispersion — sectors and stocks that can outperform while the benchmarks consolidate.

Speaking of alpha, we’ve been advocating since early summer to rotate into SMID caps (Russell 2K), as well as uncorrelated assets like Precious Metals and KWEB. Here’s the Q3 scorecard — and we’d say we nailed it.

Now let’s check the charts.

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