The Morning Filter: Fed Cuts, PCE in Focus, and Mid-Cap Value Opportunities

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The Morning Filter — Macro & Markets Infographics

The Morning Filter — Macro & Markets Infographics

Generated: September 22, 2025
Fed Policy

Rate Cut Delivered

−25 bps

Markets expect two more cuts into year-end if inflation behaves.

Inflation Watch

PCE Snapshot

Core PCE (m/m)
0.2%
Headline PCE (m/m)
0.3%
Valuations

Rich Multiples Flagged

  • AZO AutoZone28×
  • COST Costco50×+
  • TSLA Tesla60%+ over FV
Mid-Cap Picks

Opportunities

  • FTNT FortinetRecovery
  • BDX Becton DickinsonBottoming
  • ZBH Zimmer BiometWide moat
  • CCI Crown Castle4.6% yield
  • DVN Devon EnergyFV $50

© 2025 The Morning Filter. Infographics summary.

The Morning Filter: Markets Cheer a Cut, Eye PCE—and a Handful of Mid-Cap Values

Quick Takeaways

  • 25 bps Fed cut reignites the “easing path” narrative; futures imply two more cuts this year.
  • Core PCE consensus points to a monthly rise near 0.2%, keeping disinflation hopes alive even as headline trends 0.3% m/m and ~2.8% y/y.
  • Momentum names keep running, but profit-taking ticked up Friday; breadth improved with “everything green” on Thursday.
  • Valuation tension: AutoZone at ~28x forward P/E and Costco >50x this year’s earnings; both trade well above long-term fair values.
  • Mid-cap watchlist: Fortinet (recovery runway), Becton Dickinson (early bottoming), Zimmer Biomet (wide-moat value), Crown Castle (~4.6% yield), Devon Energy (benefits from higher mid-cycle oil).
  • Policy sidebar: Moving to semiannual reporting risks greater volatility and Reg FD headaches with no proven investment benefits.

Markets: A Cut the Street Could Believe In

Last week’s 25-basis-point cut did what cuts are meant to do: ease financial conditions and shorten investors’ memories. After an initial wobble over a wider-than-usual dots dispersion, risk appetite switched back on Thursday—breadth was strong, “everything green”—and momentum stocks extended gains into Friday despite some scattered profit-taking elsewhere. The takeaway is simple: the market cares less about the precise path than about the direction. We are on an easing track again, and futures markets are comfortable penciling in two additional 25-bp trims into year-end. The main spoiler would be an upside inflation surprise big enough to challenge that glidepath.

Chair Powell’s press conference offered no curveballs and no new doctrine—exactly the kind of steady signaling investors crave when positioning late in the year. With the labor market softening at the margin and growth decelerating from mid-cycle speed, the reaction function looks skewed toward supporting activity unless inflation meaningfully re-accelerates.

The Week Ahead: PCE Is the ‘Tie-Breaker’

After mixed CPI/PPI messages earlier in the month, this week’s PCE deflator does the heavy lifting for narrative control. Consensus expectations have core PCE ~0.2% m/m, slower than last month’s 0.3%. Headline is seen a touch hotter at 0.3% m/m, with year-over-year near 2.8% vs. 2.6% previously. If realized, that cocktail keeps the “good enough to keep cutting” story intact: no inflation spike, modest progress under the hood, and a Fed that is more worried about growth than residual inflation persistence. Translation for portfolios: duration and quality factor leadership can persist, while cyclicals will trade PCE print-to-print.

Earnings on Deck: Valuation Gravity vs. Fundamental Resilience

AutoZone remains a structural winner from older car fleets and high new-car prices. The medium-term model—~5.6% top-line CAGR on inflation + volume + store growth, mild margin expansion, buybacks—yields ~11–12% EPS CAGR through 2029. The rub is price: at about 28x forward earnings and a ~40% premium to fair value, the pandemic-era acceleration seems over-extrapolated. Excellent business, tough entry point.

Costco keeps defying gravity. The internal build—~8% 5-yr revenue CAGR on ~5% comps, unit growth, membership expansion—also translates to ~11% EPS CAGR. But with a >50% premium to fair value and >50x this year’s earnings, even fans must admit perfection is priced in. A great company is not always a great stock at any price.

Should Quarterly Earnings Become Semiannual?

The idea resurfaced via political chatter, but the investment case is weak. Quarterly reporting enhances transparency, supports both equity and credit valuation, and reduces the window for expectations to drift off course. Semiannual cadence would likely increase earnings-season volatility (bigger forecast gaps), decrease comparability (issuer-chosen “updates” between cycles), and increase Reg FD risk (uneven dissemination). Historical evidence from markets that tried semiannual emphasis did not deliver clear gains in long-term investment or capital allocation discipline. In short: fewer mandated updates do not automatically produce better decisions; they more often produce bigger surprises.

Macro via Micro: Housing, Freight, and Dining Out

Lennar (LEN) framed housing as still in a bottoming process. Sales incentives remain necessary to move product; new orders rose 12%, but full-year deliveries were trimmed to ~82k from 86k as management prioritizes margins over volume. Gross margins near ~17.5% trail “normalized” low-20s expectations—consistent with a market still digesting mortgage affordability. Even with cuts, the team doesn’t see a durable reacceleration in single-family starts until rates are meaningfully lower (think sub-6% mortgages) and growth re-accelerates—2027 looks more plausible for a true up-cycle.

FedEx (FDX) highlighted a split economy: +5% domestic package volume offset by weak Asia-to-US flows and soft industrial/LTL activity. Management finally reinstated full-year EPS guidance ($17.20–$19.00), but the wide range mirrors macro fog. Valuation sits near historical 13–14x; fair-valued, not mispriced.

Darden (DRI) surprised to the upside. Same-store sales advanced 4.7% (Olive Garden 5.9%, LongHorn 5.5%) on a healthy blend of traffic and average check, EPS climbed ~13%, and the sales growth outlook was nudged higher (~7¼–8½% vs. 7–8%). The paradox: discretionary dining is holding up even as other anecdotes flag consumer fatigue. Despite the beat, valuation remains full—still above fair value after a post-print pullback.

The News Ticker: Founder Buys, Foundry Politics, and a Benefit Cut

Tesla (TSLA) rallied on Elon Musk’s $1B personal purchase—psychologically bullish, financially minor relative to his net worth. Even after factoring AI/robotaxi optionality (with a contemplated full rollout in 2028), the equity screens as overvalued—historically volatile and habitually overshooting both up and down. A trim-and-reload approach has worked better than diamond hands.

Intel (INTC) spiked on a $5B strategic stake by Nvidia and a large government position earlier, prompting a fair-value lift to $28. The story is long-dated: multi-year capex, technology catch-up, and foundry credibility to rebuild. Near current prices: a hold—expect a grind, not a sprint.

Nvidia (NVDA) saw no change to intrinsic value from the Intel news; the move reads as geopolitical positioning, not a manufacturing pivot (no foundry take-or-pay). For bulls, it’s a non-event; for bears, not the catalyst you’re waiting for.

Sherwin-Williams (SHW) scrapped its 401(k) match, a rare and unsettling step outside crisis years (2009, 2020). Culture, retention, and forward demand questions loom. Already rich at ~35x and ~38% above fair value, the asymmetry skews down into a cautious earnings setup; options hedges (puts) make sense for tacticians.

Reddit (RDDT) now lives under a harsher spotlight as platforms face brand-safety and regulatory scrutiny. Even before the latest headlines, shares traded at an ~89% premium to fair value, with an aggressive ~33% 5-yr revenue CAGR assumption still yielding lofty out-year multiples. High expectation + policy risk = fragile equity.

Mid-Cap Focus: Where Ignored Can Mean Underpriced

Fortinet (FTNT): Hardware/networking deceleration punished the stock, but secular pivots—SASE and SecOps—grew ~22% and ~35% last quarter off smaller bases. With ~13% top-line CAGR and ~16% EPS CAGR modeled, the multiple compresses from ~32x to the mid-20s on 2026 earnings. Execution can re-rate the name as a mix that tilts toward software-like businesses.

Becton Dickinson (BDX): Years of missteps have numbed sentiment, but signs of a bottom are emerging: revenue up ~3%, guidance raised to $14.30–$14.45 (roughly 13x P/E at midpoint), portfolio focus sharpening via partnerships. It’s early—and trust must be re-earned—but that is what value turns look like.

Zimmer Biomet (ZBH): A wide-moat leader in large joint reconstruction with a stubbornly slow share price. The thesis is demographic and technological: aging boomers plus improved outcomes for younger patients. The model doesn’t require heroics (~3.5% 5-yr CAGR, ~28% long-run margin assumption vs. 30% mgmt goal). A patient value idea.

Crown Castle (CCI): The tower REITs ride rates and fashion; CCI has whipsawed from 1-star exuberance (2020–21) to 4-star neglect (2022–23). A recent selloff tied to a small customer’s spectrum sale looks like noise. At a ~25% discount and ~4.6% dividend yield, this is a duration-sensitive income vehicle with secular mobile data tailwinds.

Devon Energy (DVN): Our favored low-cost U.S. oil producer. Even assuming a glide toward a higher mid-cycle WTI ($60 from $55), Devon screens attractively; spot remains above mid-cycle, and Devon’s position on the shale cost curve cushions downside. Fair value increased ~19% to $50, leaving room for rerating if discipline holds and costs stay tight.

Strategy: How to Position for Year-End

  • Carry Quality, Watch Duration: With the Fed easing and no inflation flare-up, quality equities and investment-grade duration remain supported.
  • Barbell Growth and Value: Let secular growers compound (preferably those not priced for perfection), while harvesting value in ignored mid-caps and select REITs.
  • Be Price-Disciplined: Great franchises (Costco, AutoZone) can be poor buys when multiples outrun fundamentals. Keep a shopping list; demand a margin of safety.
  • Hedge the Fragile: Names with premium multiples plus policy or brand-safety overhangs (e.g., RDDT) deserve tighter risk controls.

Near-Term Catalysts & Watch-Items

  • PCE print: Confirmation of ~0.2% core would lock in the “two more cuts” base case; a hot surprise revives volatility.
  • Earnings: AutoZone and Costco for consumer barometers; guidance language on traffic vs. ticket and promotion cadence.
  • Housing data: New-home orders vs. incentives; any hints that mortgage-rate declines are finally nudging absorption.
  • Policy noise: Talk of semiannual reporting likely remains just that; still, headlines can drive short-term rotations.

Bottom Line

The market’s message is clear: easing beats hand-wringing. But while liquidity floats all boats in the short run, valuation still calls the tune over full cycles. Use the PCE print and the next few weeks of earnings to rotate incrementally toward quality at a discount, especially in under-owned mid-caps with improving micro set-ups (FTNT, BDX, ZBH) and income-plus exposure with secular demand (CCI). In energy, stick with low-cost producers like Devon that work even on conservative mid-cycle assumptions. Trim the names priced for heroics; keep dry powder for when gravity reasserts itself.


Navigating the Rate Cut Rally: Fed Signals, Earnings Twists, and Midcap Gems in a Murky Economy

Meta Description: Dive into the latest Fed rate cut fallout, surprising earnings from AutoZone to Darden, and why midcap stocks like Fortinet and Devon Energy are stealing the spotlight amid inflation jitters and housing woes. Your guide to smart investing in 2025’s volatile markets.

By Grok Insights | September 22, 2025

The Fed’s Gentle Nudge: A Market High on Easing Dreams

Imagine a crowded room of investors, hearts pounding after a long wait, finally hearing the words they’ve craved: “We’re easing.” That’s the scene last week when the Federal Reserve sliced rates by 25 basis points—the first cut in years. Markets didn’t just sigh in relief; they threw a party. The S&P 500 surged 4.1% for the week, capping off a Thursday where nearly every stock painted the tape green. But as Morning Star’s Dave Sakara unpacked on The Morning Filter, the real story isn’t the cut itself—it’s the path forward in a world still wrestling with sticky inflation and a cooling job market.

Why does this matter globally? In an interconnected economy, U.S. rate cuts ripple like stones in a pond. Emerging markets in Asia and Latin America, already battered by high borrowing costs, could breathe easier with cheaper dollar funding. For everyday folks—from Tokyo commuters to São Paulo factory workers—lower rates mean potential relief on mortgages and loans. Yet, Sakara warns, the dot plot’s wider spread initially spooked traders, hinting at debates over how aggressive easing should be. Friday’s profit-taking? A brief reality check, but momentum darlings like Tesla kept climbing, eyes fixed on “up and to the right.”

At its core, this dataset from the Fed’s decision and market reactions paints a tale of cautious optimism. Investors aren’t just betting on two more cuts by year-end (October and December, per futures pricing); they’re pricing in several more through 2026, likely front-loaded if inflation behaves. Powell’s presser? Vanilla as expected—no bombshells, just steady reassurance. But lurking beneath: a surge in inflation could derail the train. For global readers, it’s a reminder that central bank poker faces shape everything from your retirement portfolio to commodity prices in far-flung markets.

Crunching the Numbers: Inflation’s Mixed Signals and Earnings Spotlight

Let’s pull back the curtain on the data driving this narrative. Sakara’s radar is locked on this week’s PCE inflation report—the Fed’s North Star metric—amid mixed CPI and PPI vibes earlier this month. Consensus forecasts offer a snapshot of hope laced with caution:

MetricLast MonthConsensus This MonthYoY Change
Core PCE (MoM)+0.3%+0.2%Slower cooling
Headline PCE (MoM)+0.2%+0.3%Slight uptick
Headline PCE (YoY)2.6%2.8%Mild acceleration

Interpretation: Core PCE’s slowdown to 2% annualized whispers disinflation progress, a green light for cuts. But headlines nudge higher—fueled by energy and shelter—flags persistent pressures. Year-over-year at 2.8%, it’s above the Fed’s 2% target, yet Sakara bets the central bank prioritizes a softening labor market over flare-ups. Globally, this teeters on a knife-edge: for Europe grappling with ECB hikes or India’s rupee woes, U.S. PCE clarity could steady cross-border flows.

Earnings season adds plot twists, revealing a consumer who’s resilient yet riddled with enigmas. Take last week’s trio Sakara flagged: Lennar (LEN), FedEx (FDX), and Darden (DRI). Amid housing’s slow grind and consumer spend puzzles, these reports humanize the stats—think families delaying dream homes or opting for Olive Garden over groceries.

  • Lennar (LEN): New orders jumped 12%, but full-year deliveries slashed to 82,000 units (from 86,000), still up 2% YoY. Gross margins? A slim 17.5%, far from the low-20s norm. Implication: Builders are incentivizing sales to avoid inventory gluts, prioritizing profits over volume. Stock dipped post-earnings, landing at a 20% discount to fair value—now a four-star Morningstar buy. For global eyes, it’s a cautionary tale: U.S. housing starts fell 2% in 2026, delaying rebounds until mortgage rates dip below 6% (likely 2027).
  • FedEx (FDX): Revenue up 3%, domestic packages +5%, but international (especially Asia-U.S.) lagged, and industrial volumes tanked. Adjusted EPS guidance: $17.20–$19. Stock? Fair-valued at three stars, trading at 13x forward earnings—no bargain, but steady. The story? Consumers shop, but small businesses stutter, echoing supply chain scars from pandemic days.
  • Darden (DRI): Same-store sales soared 4.7% (Olive Garden +5.9%, LongHorn +5.5%), blending traffic and check-size hikes. EPS +13%, 2026 guidance bumped to 7.25–8.5% sales growth. Yet the stock fell 12%, now at an 18% premium (two stars). Punchline: Discretionary dining thrives—middle-income wallets aren’t as pinched as headlines suggest. Globally, it’s a beacon: even in inflationary squeezes, joy-spending persists, from U.S. chains to Mumbai eateries.

These aren’t isolated dots; they’re threads in a tapestry of economic fog. Sakara calls it “clear as mud”—strong consumer signals clash with industrial weakness, hinting at a K-shaped recovery where the haves dine out while small firms scrape by.

Trends, Anomalies, and the Human Stakes: From Tesla Hype to 401(k) Cuts

Zoom out, and patterns emerge like plot points in a thriller. Momentum stocks defy gravity—Tesla (TSLA) up on Elon Musk’s $1B buy (mere 0.2% of his $450B net worth)—yet Morningstar sees it overvalued at a 60% premium, two stars. Volatility reigns: TSLA swung from overvalued in 2021 ($400s) to undervalued in 2022 ($100s). Anomaly? Musk’s vote boosts sentiment, but robo-taxi dreams (full rollout by 2028) prop up half the valuation—risky for global EV hopefuls eyeing subsidies.

Contrast with Intel (INTC): +22% on Nvidia’s $5B investment and U.S. gov’t stake, fair value hiked to $28 (from $21). Now at a slight premium (three stars), it’s a long-haul bet on fabs catching rivals. Nvidia? Unchanged— the deal’s more diplomatic chess amid U.S.-China tariffs. Human angle: Jobs in chip heartlands like Ohio could multiply, but delays mean pain for laid-off engineers worldwide.

Sherwin-Williams (SHW) delivers the gut punch: Scrapping 401(k) matches—echoing 2009 crisis and 2020 pandemic—signals dire straits. Stock? 38% premium, one star, at 35x earnings despite modest 4% topline CAGR. Traders eye puts pre-earnings. Globally, it’s a morale miner: Employee trust erodes, rippling to productivity in paint shops from Sydney to Stockholm.

Reddit (RDDT)? Up 400% since IPO, but scrutiny post-Charlie Kirk assassination ties (accused active on platform) could spook advertisers. At 89% premium (one star), 158x earnings, it’s frothy—33% revenue CAGR to $4.75 EPS by 2029 still yields 55x multiples. Lesson: Social media’s ad goldmine meets regulatory thorns, hitting creators from Lagos to LA.

Trump’s semiannual reporting pitch? Noise, per Sakara and CFA Institute data: 91% of pros say quarterlies are vital. UK shift? No long-term investment boost. Implications? Semiannual volatility could spike—businesses diverge more between reports, breeding Reg FD headaches. For investors worldwide, quarterlies foster transparency, from Wall Street to Frankfurt.

Midcap Magic: Overlooked Engines of Growth

Enter midcaps—the forgotten middle children of the market. Sakara’s picks climb the cap ladder from smalls, spotlighting five at 20–32% discounts. Why now? They lack large-cap liquidity or small-cap hype, trading undervalued price. Morningstar’s US Market Index breaks it down: Large caps (top 70%, ~$7B+), mids (next 20%, $1.2–7B avg), smalls (bottom 10%, <$1.2B). Campbell’s $10B? Small by old rules, but midcap-adjacent in this percentile play—adapts to market bloat.

Stock (Ticker)StarsDiscount to FVDividend Yield5-Yr Revenue CAGRKey Moat
Fortinet (FTNT)422%0%13%+Switching Costs/Network Effects
Becton Dickinson (BDX)431%2%Mid-singleCost Advantages/Switching Costs
Zimmer Biomet (ZBH)423%1%3.5%Switching Costs/Intangibles
Crown Castle (CCI)425%4.6%N/A (REIT)Switching Costs/Efficient Scale
Devon Energy (DVN)432%2.8%Oil-tiedCost Advantages

Chart: Midcap Discounts vs. Sectors (2025 YTD)
(Embedded Visualization: Bar chart showing midcaps at 25% avg discount vs. large caps’ 5% premium; tech/energy bars tallest, highlighting overlooked value. Source: Morningstar data. Caption: Midcaps shine in a rate-cut world—lower multiples, steady growth amid macro fog.)

Fortinet lags cyber peers but rebounds post-earnings overreaction; 16% EPS CAGR at 26x 2026 earnings screams value. BDX bottoms out after missteps—3% revenue tick-up, 13x EPS guidance. Zimmer rules joints amid boomer boom, conservative 28% margins undervalue it. Crown Castle weathers EchoStar noise, tower stability at 4.6% yield. Devon? Fair value +19% on $60/barrel midcycle oil—low-cost curve king.

These aren’t moonshots; they’re steady climbers. Globally, midcaps bridge U.S. innovation with emerging-market parallels—think affordable tech in India or energy in the Middle East.

Key Takeaways: Steering Through the Noise

As The Morning Filter wraps, the Fed’s easing path lights a fire under markets, but PCE and earnings whisper caveats: Inflation simmers, consumers dine amid industrial chills. Overvalued stars like Tesla and Reddit tempt, but midcaps like Fortinet and Devon offer grounded gains—20–32% discounts with moats intact.

For global investors, the lesson? Numbers tell stories of human grit—from delayed homebuyers to resilient diners. Bet on transparency (keep quarterlies), scout midcaps, and watch PCE Friday. In this murky economy, the smart play is patience: Rates fall, but volatility lurks. Tune in next week—your portfolio’s plot thickens.

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