Monday Takeaways: Credit Markets Send All-Clear Signal

Shah Gilani|September 29, 2025

The credit markets are telling us something important…

Investment-grade and high-yield spreads over Treasurys are at remarkably low levels – the kind of tight spreads that signal zero concerns about corporate health or the economy.

And why would there be? GDP just clocked in at 3.8% growth.

But here’s where it gets interesting…

• 2026 earnings estimates now expect 13.7% growth
• Performance chasing still hasn’t fully kicked in
• The first potential government shutdown in seven years is looming.

That shutdown could be our opportunity. If we see a dip, I’ll be buying more.

I’ll explain why the credit markets’ all-clear signal is so powerful, what analysts’ rising forecasts really mean, and how to play the potential shutdown scenario.

Click on the image below to find out why I’m hoping for a pullback.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways, and they’re mostly good with a couple of caveats. So first up, let’s have a look back at last week as we always do on Mondays.

Friday broke a three-day losing streak for the markets with pretty decent gains. Nothing spectacular, but it was certainly nice to break the three-day losing streak, and that sent a positive tone for markets over the weekend. And into this morning, we see the futures up nicely – half a point plus across most of the major indexes. Now why are things still bullish and why am I still bullish?

Couple of takeaways from last week. We have revised GDP growth for the second quarter. So the latest revision showed GDP growing at a remarkable – not just 3%, people, which I think is remarkable, 2.9% is remarkable – but as far as GDP goes, 3.8%. Knocking on the door of 4% in this very mature, very large, biggest-in-the-world economy. Staggeringly good.

So that’s a positive momentum for the economy, which is positive momentum for stocks. And let’s not forget the market is not the economy. The economy is not the market, but moreover, the market is not the economy. But when the economy does well, the market almost – almost, almost – hardly ever doesn’t do well. Hardly ever. I can’t even think of circumstances. Of course, there are going to be corrections. There are going to be issues, which I’ll get to.

But with economic growth as robust as it is, looking pretty good. Now how good? Analysts are raising their forecasts. They’ve been raising their forecasts since toward the end of the second quarter. And certainly, as companies began reporting second-quarter numbers, analysts began revising future prospects for earnings growth higher and higher, and they’re still raising expectations.

Now it looks like the consensus estimate – there are different consensus estimates. I’m going to go by a cross between FactSet and Bloomberg. For 2025, there’s about 10.7% growth. Now that includes the mega caps that are growing at 30-plus percent in terms of earnings growth. And, of course, you have some of those slower-moving companies – for example, health care, some utilities, energy – not carrying the weight. But, certainly, the blended 10.7% expectation for all of 2025 is pretty darn robust. What’s even more interesting and telling in terms of optimism is now for 2026, that estimate is up to 13.7% earnings growth next year.

Wow. No wonder investors are bullish because earnings expectations keep ticking higher. So, yes, multiples are getting higher in the process. Yes. There’s some question about valuations being stretched. Yes. But it doesn’t matter. There are still underperformers in terms of institutions and hedge funds and retail investors who haven’t caught the full, I would say, rocket ride that we have experienced since the April tariff tantrum lows.

That performance chasing is going to keep investors plowing money back into the market. So, really, the takeaway from all this is pretty positive. Now that being said, you could even say that 2.9% PCE – yes, inflation is still growing, core PCE at 2.9% – but the markets are digesting that. That’s not a good number. That’s more than 50% above the Fed’s target, which they can’t seem to come close to. But it doesn’t matter. Doesn’t matter to equities. Certainly, it doesn’t matter really to the credit markets. Yes. Yields are moving around, ticking a little bit higher again on the ten-year. But in terms of credit markets, in terms of credit spreads, really positive, showing that investors in corporate bonds have no worries.

We’re marking plumbing-really-low spreads in terms of investment grade over Treasuries or even high yield over Treasuries. Anywhere along the spectrum, we’re talking remarkably low spreads, which is indicative of, I guess you want to call it, just a bullish sense that the economy is going to continue to grow. Corporations are going to continue to be able to make debt service, and therefore, credits look really healthy. So we’re also seeing a lot of issuance, and that’s being absorbed beautifully.

So lots of issuance being absorbed, credit spreads being really tight. That’s a real positive. Your takeaway there is there are no worries, at least as far as the credit markets look and can see right now. So a lot of positive there.

Again, PCE – yeah, it’s been a problem, but it’s been a problem for years now, and markets don’t seem to mind. So you’ve got to look past that. I know it’s something that people worry about, and they’re worried about it certainly, and we should be in terms of will the Fed continue to cut? I don’t think they should. I don’t think they should have cut last time. Twenty-five basis points. So what? Big deal given that.

Will they cut at the end of October? There’s no reason for them to cut. The economy growing 3.8%. Why do they need to cut? They don’t need to cut. Do markets need a cut? No. They don’t. They really don’t. So if you look at CapEx in terms of AI spend, that’s not being impeded by elevated rates at all.

So as far as CapEx goes, as far as corporations borrowing to expand production, facilities, infrastructure, everything that is necessary to up their earnings growth rates – yeah, they’re spending it. So positive. A lot of positives out there.

Now negatives – well, we’ve got the potential government shutdown this week, and that’s a problem. And if we do see a shutdown, the question will be for how long. If we see a shutdown, this would be the first time in seven years that we could see a shutdown. If we do, the question is how are investors going to react? How are markets going to react? Will this be an opportunity for profit taking? If it is – and we’ll see if it happens – how much profit taking occurs? Will it just be a little bit of a 2%, 3% move down as profits get taken off the table, and there are a lot of them on the table? Or if we see an extended shutdown and layoffs, and we don’t get economic reports like Friday’s jobs report – if we don’t get that, then we’re going to start to wonder what data are we not seeing and what’s really going on with the data. And that might be problematic for investors who might take more profits off the table. So that’s the only real immediate negative in front of us now.

As far as the other thing I think that could be a negative is if Japan raises rates. Then we could see something of a bit of a sell-down in terms of the yen carry trade, which has afforded a lot of buying and speculation in U.S. equities. So, rising rates in Japan could put a damper on that sort of speculation, which means perhaps, again, some profit taking or some selling down of positions if the yen carry trade reverses and the cost of financing speculation in U.S. equities rises. So that’s out there, but I don’t think they’re going to raise precipitously. They might raise a little bit. That’s the consensus that there should be some raise, and some of the governors at the Bank of Japan are recommending a tick up in rates. But if it’s not substantial, I don’t know that the markets are going to have a problem with it. If it is substantial, I think the Bank of Japan knows what happened last time when they raised unexpectedly. Markets globally tumbled, so I don’t think they’re going to make that mistake.

So, yeah, takeaway for the week is pretty positive. Just be careful out there because we’ve got a government shutdown. Might be a reason to take some profits, but, otherwise, pretty darn good scenario for the economy, for the markets. Me personally, I’d love to see a dip because I want to buy more. So any dip for me is a buying opportunity. Any takeaways from Monday. Catch you guys next week. Cheers.