Funds are shifting into the seasonal rebalancing phase. After Nvidia’s record earnings, some institutional investors are rotating out of technology, locking in profits instead of chasing another leg higher. With September now underway—historically one of the weakest months for equities—risks are stacking up.

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Fed Policy and Economic Data

Markets are pricing in an 85% chance of a Federal Reserve rate cut next month. The challenge is that these cuts would land in a still-hot economy. Second-quarter GDP was revised up to 3.3%, the strongest growth in nearly two years, while inflation remains sticky. That mix is fueling skepticism about the Fed’s credibility and complicates expectations heading into September’s meeting.

This week’s August jobs report will be a key input. Consensus calls for just 78,000 payrolls added, unemployment ticking up to 4.3% (a near four-year high), and wage growth holding steady at 0.3%. Additional labor indicators—including the ADP employment report, JOLTS survey, and Challenger layoffs data—will shape investor expectations ahead of the Fed’s decision.

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Policy Headwinds

Legal and fiscal developments are adding pressure. On Friday, an appeals court ruled that part of the administration’s sweeping tariff program—once projected to generate over $500 billion a year—was illegal. Reviving it would now require congressional approval.

At the same time, government funding expires September 30. The administration is testing executive authority with a “pocket rescission,” canceling $5 billion in foreign aid without congressional approval. Lawmakers are already challenging its constitutionality, raising the risk of a funding standoff.

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Market Performance and Sector Moves

Equities ended the week little changed after sharp swings. The S&P 500 slipped 0.1%, though not before logging its 19th and 20th record closes of 2025. The Dow eased 0.2%, and the Nasdaq fell 0.2%. Semiconductor stocks led the pullback after Nvidia issued a cautious revenue outlook, cooling some of the enthusiasm around the AI trade.

Safe-haven demand is rising. Gold and silver rallied Friday as investors sought protection from Fed uncertainty, fiscal risks, and persistent inflation. Meanwhile, the latest Producer Price Index confirmed that price pressures are easing more slowly than markets had hoped.

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Seasonal Risks in September

September has earned its reputation as Wall Street’s toughest month. Over nearly a century of data, the S&P 500 has posted negative returns 56% of the time, with an average decline of –1.2%. Tax payments, Treasury issuance, and institutional rebalancing typically drain liquidity just as traders trim risk ahead of earnings season.

This year, those seasonal pressures are colliding with record hedge fund crowding in mega-cap tech, leaving markets especially fragile. Historically, defensive positioning—favoring healthcare, consumer staples, and utilities—along with volatility hedges has been the more resilient approach until October resets sentiment.

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Looking Ahead

Broadcom and Salesforce earnings this week could sway sentiment in the tech sector. But the broader story is one of shifting leadership: AI remains the growth anchor, yet September presents a test of discipline for investors.

Chasing highs in September rarely pays off. A defensive tilt, paired with selective exposure to rate-sensitive sectors, has historically outperformed. October often resets the stage—but first comes a seasonal trial for market momentum.

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Stay Ahead of the Rotation with LevelFields

As seasonal risks stack up, institutional investors are quietly adjusting their portfolios—rotating out of crowded tech trades and into safer ground. But most retail traders only notice these moves after they’ve happened.
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LevelFields AI changes that.
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The platform tracks shifts in institutional positioning, policy changes, inflation reports, and macroeconomic signals in real time—surfacing alerts before the broader market reacts. Whether it's sector rotations during September seasonality or defensive setups tied to Fed policy, LevelFields helps you spot the trade while it’s developing, not after.

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