September 2025 Market Memo

Performance:

Please contact us to inquire about our performance.

September Investment Summary:

In September, our core trading approach was bearish yet opportunistic — maintaining a strong awareness of market risks while staying alert to potential opportunities. During the month, we traded short-term swings in the Russell 2000 ETF (IWM), Tesla (TSLA), and several energy sector positions. Our current focus has shifted toward large-cap healthcare (XLV) and long-term U.S. Treasuries (TLT).

We maintained at least 50% in cash. Unlike last month, this month we also allocated up to 3% of the portfolio to S&P 500 put options for downside protection, while selectively positioning for short opportunities.

Market Overview, Analysis, and Outlook:

Macro Environment

Despite the typical seasonal weakness in September, U.S. equities remained resilient. Neither the threat of a government shutdown, shifting geopolitical dynamics, nor unexpected moves by global central banks managed to weigh on the market. The market’s seeming immunity to bad news is, paradoxically, what we view as the greatest source of risk. A healthy bull market is often accompanied by disciplined and natural pullbacks. Today’s environment—where investors feel anxious about missing out or falling behind the index—has become one of the key forces driving the rally and, at the same time, a sign of growing fragility.

Last month, we discussed trends in the Chinese market. While those segments are not yet the most crowded trades, we have seen strong momentum emerging in precious metals such as gold and silver. This reflects investors’ reactions to factors such as the weaker dollar, recurring inflation concerns, and the shortage of speculative opportunities elsewhere.

Our outlook for the U.S. market remains unchanged: we continue to approach it with patience and respect. There are several key points we believe investors may be overlooking:

1. U.S. equity momentum is weakening, and fragility is increasing
   After five consecutive months of gains, the pace and magnitude of the rally have slowed. The market now tends to climb in small steps but decline in sharper drops. Sector rotation lacks continuity and is increasingly driven by news—such as OpenAI’s partnerships or government-pharma negotiations. Meanwhile, capital is being drawn away from equities into gold, silver, and cryptocurrencies. What we observe is fragility, not the resilience required for sustained upside.

2. Valuations remain elevated
   Even excluding mega-cap tech companies, the broader market is far from cheap. According to Topdown Charts, valuations across the remaining stocks are still high, which discourages long-term, value-driven investors from buying and holding. Instead, short-term speculative capital dominates, creating an illusion of prosperity.

3. Opportunities still exist
   We are watching sectors that are undervalued yet beginning to attract fresh capital—particularly large-cap healthcare. Many major pharmaceutical companies remain inexpensive. For example, Pfizer (PFE) trades at around 8x forward earnings and offers solid dividends. Government policy pressures have been a key reason for low valuations, but we’re now seeing early signs that those constraints may ease — a potential positive for the sector.

   Meanwhile, China’s market is entering a phase of divergence. While we remain optimistic about long-term opportunities there, we do not plan to act in the near term.

Capital Flows and Market Behavior:

1. Most hedge funds are already heavily invested, while major CTA (Commodity Trading Advisor) funds have reached near-record exposure levels.

2. Despite low volatility, there are substantial short-volatility positions in the market—not only in VIX futures but also across CTA strategies.

3. Speculative trading is active, particularly among small-cap stocks—a defining feature of the current market.

Future Outlook and Strategy:

We remain defensive and patient, waiting for the next meaningful trend to emerge.

Wei Cheng
CEO and Chief Investment Officer

Tranquil Tide Wealth

Written on September 30, 2025