UBS asserts that robust earnings and anticipated Federal Reserve rate cuts render record-high U.S. equities not worrisome. The firm encourages continued investment in markets, supported by economic growth and interest rate reductions.
Despite September’s historical reputation for weak equity performance, the broader environment is conducive for gains. Historical data shows that periods of Federal Reserve rate cuts alongside economic growth often lead to positive equity market outcomes.
Analysis Of PE Ratios
The S&P 500’s forward price-to-earnings ratio is approximately 22, close to the peak of its historical range. UBS believes this is warranted due to substantial profit growth and future financial prospects.
Concerns about the impact of all-time highs are downplayed, with UBS pointing out that since 1960, the index has achieved average returns of 12% within a year after reaching a record and 38% over the subsequent three years.
We see that equities are trading near record highs, but we shouldn’t be concerned. The latest CPI reading for August 2025 came in at 2.9%, reinforcing beliefs that the Federal Reserve will cut interest rates soon. The CME FedWatch tool is now pricing in an over 85% probability of a rate cut at the next meeting, a historically bullish signal for stocks when the economy is not in recession.
Given this backdrop, traders could consider selling out-of-the-money put credit spreads on major indices like the S&P 500. This strategy profits if the market moves up, sideways, or even slightly down, taking advantage of both the supportive environment and time decay. It allows us to collect premium based on the view that a significant downturn is unlikely in the coming weeks.
Historical Market Weakness
Some might point to the S&P 500’s forward price-to-earnings ratio being high at around 22 times. However, this seems justified by strong corporate performance, as we’ve seen S&P 500 companies report year-over-year earnings growth of 11% for the second quarter of 2025. This underlying profit strength suggests valuations can be sustained.
We should acknowledge that September has historically been the market’s weakest month, with the S&P 500 declining on average going back to 1950. Any seasonal dip could therefore be viewed as an opportunity to initiate longer-term bullish positions. This could involve buying call options with expirations in December 2025 or early 2026 to position for a year-end rally.
The fact that we are at all-time highs shouldn’t be a deterrent either. Since 1960, hitting a new record has historically led to average returns of about 12% over the following year. This suggests that using strategies like bull call spreads, which define risk while capturing upside, remains a sensible approach through the rest of the year.
