UBS believes that strong earnings and expected interest rate cuts from the Federal Reserve make record-high U.S. stock prices less concerning. The firm advises continued investment in the market, fueled by economic growth and lower interest rates. Although September is usually considered a weak month for stocks, the overall environment looks favorable for gains. History shows that when the Federal Reserve cuts rates and the economy grows, stock markets tend to perform well.

Analysis Of PE Ratios

The S&P 500’s price-to-earnings ratio is about 22, near its historical peak. UBS thinks this is justified due to significant profit growth and optimistic future expectations. Concerns about stocks at record highs are minimal. Since 1960, the S&P 500 has averaged a return of 12% within a year of reaching a new record and 38% over the next three years. Currently, even with stocks trading at record highs, there’s no need for concern. The Consumer Price Index (CPI) for August 2025 is 2.9%, which supports the idea that the Federal Reserve will cut rates soon. The CME FedWatch tool indicates an over 85% likelihood of a rate cut at the next meeting, a strong positive sign for stocks when the economy is stable. In light of this, traders might explore selling out-of-the-money put credit spreads on major indices like the S&P 500. This strategy profits if the market trends up, stays flat, or even dips slightly, capitalizing on a supportive environment and time decay. It lets traders collect premiums on the belief that a significant downturn is unlikely in the coming weeks.

Historical Market Weakness

While some may focus on the S&P 500’s high price-to-earnings ratio of around 22, this appears supported by solid corporate performance. In the second quarter of 2025, S&P 500 companies reported an 11% increase in earnings compared to the previous year. This profit strength suggests that current valuations can hold. It’s important to remember that September has historically been the weakest month for markets, with the S&P 500 often declining on average since 1950. Any seasonal drop could provide a good chance to invest in bullish positions for the long term. This might include purchasing call options with expirations in December 2025 or early 2026 to take advantage of a potential year-end rally. Moreover, reaching all-time highs should not be a reason for caution. Since 1960, new record highs have resulted in average returns of around 12% in the following year. This indicates that strategies like bull call spreads, which limit risk while allowing for upside potential, are still smart choices for the remainder of the year. Create your live VT Markets account and start trading now.

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