May was a month of records. The S&P 500, Nasdaq, Dow, and Russell 2000 all set new all-time highs, but the gains were powered almost entirely by technology and semiconductor stocks. These gains came despite an interest rate scare, as back-to-back hot inflation readings increased the probability of a Federal Reserve rate hike and sent long-term Treasury yields rising. Meanwhile, a sharp drop in oil prices somewhat eased the inflation concerns. Corporate earnings growth remained strong with record profit margins, though the strength was concentrated in a handful of large companies and AI-related stocks.
Market Commentary 9/25/25
Fed Rate Cut and Historic Tightness in Credit Spreads
Last week’s Federal Reserve rate cut was widely anticipated, but the market reaction underscored just how unusual today’s credit environment has become.
Corporate credit spreads, already compressed by historical standards, tightened further, underscoring investor appetite for corporate bonds even as Treasury yields remain elevated.
Credit Spreads at Multi-Decade Lows
Corporate borrowers are paying risk premiums not seen in decades. Investment-grade spreads have fallen to 0.77%, a level last observed in 1998 and far below the long-run average of roughly 1.30%. Additionally, high-yield spreads, at 2.79%, are similarly depressed, marking their tightest level since 2007 and sitting well below the median of 4.59% since 1996.
This divergence highlights the unusual dynamic of today’s market: investors are willing to accept historically low compensation for corporate risk even as concerns about U.S. fiscal sustainability keep Treasury yields elevated. In effect, corporations are viewed as safer bets than the sovereign balance sheet they borrow against.
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