By Dennis Karpenko, CFA
Despite historically being one of the worst-performing months for the stock market, this year, September continued the positive momentum from earlier in the year and saw increases across major indexes. Much of the cautious optimism moving into the month was realized when the Federal Reserve opted to make its first rate cut since 2024 (a 0.25% cut).
Equities
Domestic equities extended their positive month streak to five after April’s down month. The S&P 500 returned just over 3.6%, now up over 14% for the year. The Tech and Communication Services sectors were the leaders for the month, led by the “Magnificent Seven” stocks; Alphabet up over 14%, Apple up nearly 10% and Tesla up 33% for the month.
Continuing their trend from August, small caps had another positive month with the Russell 2000 leading in Q3 with a return of over 12%. Overall, it appears the growth and momentum factors, along with lower rates, have continued to trend major indices higher.
Fixed Income
As yields dipped, bond markets saw a boost with indexes trending higher for the month. Historically, bonds have delivered gains in the year following an initial rate cut (this time around, those came last year), indicating investor demand for yields when rates are declining. 2025 appears to be a continuation of that trend. Municipal bonds in particular had a strong month, with the Bloomberg Municipal Bond Index leading with a return of over 2% for the month.
Economic Recap
The Federal Reserve’s interest rate cut of 25 basis points was likely the first of several, with Fed Chair Jerome Powell indicating there may be additional cuts through the end of the year; the Fed meets two more times in 2025. It was noted that labor market weakness was what led to September’s “risk management” cut.
Separately, the U.S. government is facing a shutdown with lawmakers unable to approve a new budget. Generally, these shutdowns have had minimal effects on capital markets. As an example, during the 2018–2019 shutdown, the S&P 500 posted a gain of 10.4% over the 35-day period.
Statistics are DELAYED due to the government shutdown
- U.S. Labor Force Participation Rate was 62.30% in August
- U.S. Unemployment Rate was 4.30% in August
- U.S. Inflation Rate was 2.92% in August
Disclosures
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks, including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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