Last Week on Wall Street – September 27th, 2025

S&P 500: -0.31% DOW: -0.15% NASDAQ: -0.65% 10-YR Yield: 4.17%

What Happened?

September got off to a hot start, but this week saw those gains begin to unwind. The major indexes all finished lower: S&P 500 down about 2%, the Dow slipping over 600 points, and the Nasdaq trailing with its worst week in two months. A tough string of headlines weighed on sentiment, as markets edged lower day after day. The mood soured further after Fed Chair Jerome Powell struck a cautious tone, underscoring the fine line the Fed is walking between taming inflation and supporting the labor market, comments that signaled additional cuts this year are far from certain. Add in hotter-than-hoped PCE data, sticky core goods inflation, and newly announced tariffs on imports not tied to U.S. production, and the pressure on equities was hard to ignore.

There was at least one bright spot: Q2 GDP surprised to the upside, fueled by resilient consumer spending. But that same strength is also at the heart of the inflation challenge, keeping price pressures stubborn and complicating the Fed’s path. Below we dive deeper into these crosscurrents and unpack why markets behaved the way they did.

PCE Data & New Fed Statements

Core PCE (year-over-year) remained elevated but unchanged at 2.9%.
Jerome Powell spoke this week and raised skepticism on further rate cuts for the year given higher inflation.

The key takeaway – Jerome Powell’s remarks this week signaled the Fed may be nearing the end of its rate-cutting cycle, and markets didn’t like it. While the Fed has already eased twice this year, Powell pointed to still-elevated inflation and a labor market that, while solid, is beginning to show weakness, leaving the central bank in a tough spot. The Fed’s dual mandate is pulling in opposite directions: inflation argues for restraint, while slowing job growth argues for more support.

Friday’s Core PCE release reinforced the dilemma, showing inflation still above target but flat on a year-over-year basis. That stall in progress gives the Fed little room to maneuver, and markets tumbled on the prospect that Powell’s quarter-point staircase of cuts may already be over. The months ahead will hinge on the labor data and the impact of tariffs on inflation, but for now, investors are recalibrating to a world where monetary policy flexibility is narrowing just as growth risks are rising.

GDP expanded at a surprising 3.8% pace in second-quarter revision

Q2 GDP grew at a surprising rate of 3.8%, above the expectations of 3.3%.
Consumer spending buoyed the economy rising at a 2.5% pace.

The key takeaway – The Q2 GDP report highlighted the resilience of the US consumer, with annualized growth surprising to the upside. Strong spending has fueled better-than-expected economic expansion, a clear sign the economy remains healthy and growing. While that’s good news for the broader economy, markets are less enthusiastic, as the drivers of growth may also be the reason why some investors are bracing for a tougher path ahead.

Consumer strength has been both the engine of growth and the source of frustration for policymakers. While it has supported GDP, it has also kept inflation sticky, complicating the Fed’s job and raising the prospect that interest rates may stay higher for longer. For markets, this dual reality, solid growth but persistent inflation, underscores the tension heading into year-end: an economy proving too strong to ease, but not without risks of tightening financial conditions.

Trump to Impose New Tariffs on Pharma, Big Trucks

New tariffs on drugs from pharmaceutical companies that are not building plants in the U.S.
The new tariffs will be put into place starting Oct 1st and will be for a 100% on any patented or branded pharmaceutical product unless the producing company is building a manufacturing plant in the U.S.

The key takeaway – President Trump has unveiled additional sweeping tariffs on imports, including kitchen cabinets, furniture, heavy trucks and a 100% levy on branded or patented pharmaceuticals, effective October 1, unless those companies are actively building manufacturing capacity in the U.S.

While the move is clearly intended to be an additional push for onshoring, the announcement has rattled markets because of its potential inflationary and political ripple effects. From a macro vantage point, the tariff plan creates yet another upward pressure on prices at a time when the Fed already faces sticky inflation and fading policy flexibility. Markets are treating the risk seriously, even if the direct cost pass-through may be muted, because it compounds the challenge for Powell & Team to contain inflation, support growth, and navigate trade volatility all at once.