For the period September 1 – September 30, 2025.

Executive Summary

Markets defied historical seasonality in September. Major U.S. equity indices posted their strongest September gains in over a decade, fueled by optimism around artificial intelligence, resilient corporate earnings, and an interest rate cut from the Fed. However, political uncertainty from a U.S. government shutdown and delayed economic data releases add complexity to the outlook.

What Piqued our Interest

Labor Market Weakness

Last month, we continued to receive data that corroborates softness in the labor market. The monthly nonfarm payrolls report for August came in at just 22,000 versus expectations of 75,000. We also saw the Bureau of Labor Statistic’s annual revisions to employment data through their quarterly census of Employment and Wages (QCEW) report, which showed that payrolls from April 2024 through March 2025 were actually 911,000 lower than initially reported, a revision that was the largest in the last 10 years. Additionally, job openings have fallen below the number of unemployed for the first time since 2021. The unemployment rate remains at 4.3%, but underemployment and discouraged worker metrics have been rising.

With the government shutdown delaying official data from the Bureau of Labor Statistics (BLS), we may not be receiving official data in a timely manner. The Fed will need to rely on alternative indicators, such as data from private payroll providers, especially if the shutdown lasts longer than anticipated. 

Fed Cut Fuels Optimism, But Risks Remain

Given the weakness seen in the labor market, markets began to anticipate a rate cut, especially after Jerome Powell’s speech at Jackson Hole in August. On cue, the Federal Reserve delivered their first rate cut of 2025 at their meeting on September 17, citing they are seeing “much more challenging economic times,” as inflation remains elevated.

Despite the softening labor market, consumer strength has persisted. Second quarter GDP growth was revised higher to 3.8%, and core personal consumption expenditure (PCE) held steady at 2.9%. Retailers also reported resilient demand, and discretionary spending forecasts for 2026 were revised higher by several companies at investor conferences during the month. With economic growth still positive, markets cheered the rate cut, as lower interest rates without a recessionary backdrop are supportive of risk assets. However, if growth accelerates too quickly, rate cut expectations could unwind and create headwinds for this relentless rally in markets.

Market Recap

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Equities Rally Fueled by Technology

September bucked historical trends and delivered solid returns, with the S&P 500 rising 3.7%, the Nasdaq surging 5.5%, and the Dow Industrials Average adding 2.0%. Small Caps joined the rally, with the Russell 2000 Index advancing 3.1% and hitting its first record high since 2021.

Technology stocks continued higher in September, gaining 7.3% during the month, supported by the continued enthusiasm for artificial intelligence. Several large technology companies announced forecasts for out-sized demand related to cloud computing and semiconductors.

Tech-related gains were not confined to the U.S., as global demand for semiconductors and the global buildout of AI infrastructure helped shift sentiment in markets such as China, Taiwan, and South Korea. This helped fuel the 7.2% gain in Emerging Market stocks in September, bringing year-to-date gains to 27.5%.

Fixed Income Markets Remain Stable

The 10-year Treasury yield declined in September, ending the month with yields near 4.1%, down from the January high of 4.8%. The Bloomberg U.S. Aggregate Bond Index rose 1.1%, while the high-yield index posted modest gains. Municipal bonds have lagged within Fixed income on a year-to-date basis, but they were up 2.3% in September, their best monthly return in 2025.

Wealth Enhancement Perspective

September’s performance was a reminder that markets can sustain momentum, especially when supported by mixed-yet-resilient fundamentals and dovish policy. The AI narrative continues to evolve, expanding beyond Mega Cap names into infrastructure and supply chain beneficiaries, both in the U.S. and abroad.

Despite this backdrop, we are mindful that valuations are elevated, and concentration risk persists. We also note that more accommodative monetary policy—at a time when the economy is performing—could pose upward pressure on inflation. Additionally, if economic growth accelerates too quickly from here and expectations for further rate cuts get priced out, sentiment could sour and dent market enthusiasm. 

For long-term investors, this is a time to stay diversified and opportunistic. Rebalancing, tax-loss harvesting, and selective deployment of cash may enhance outcomes. With valuations stretched and macro risks abundant, broadening exposure beyond Mega Cap Tech and into uncorrelated assets—such as infrastructure, hedged equity, and real assets—may offer better risk-adjusted returns. 

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances.

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