September Market Commentary 2025
September 2025 proved to be another positive month for equity markets, as US markets repeatedly set new records – driven by a cocktail of ongoing enthusiasm for the AI theme, as well as the US Federal Reserve cutting their interest rate for the first time in 2025. S&P 500 rose +3.53% with the small cap Russell 2000 also rising +2.96% – though it was the tech-heavy Nasdaq which led the way with a gain of +5.61%. Despite these gains, markets faced conflicting economic data, renewed trade tensions, and mounting concerns over central bank independence. By month’s end, the US was preparing for its 11th government shutdown, and first since 2018-19 – with it set to begin on 1st October.
The most significant event of the month was undoubtedly the Federal Reserve’s decision to cut its interest rate by 25 basis points to a range of 4.00–4.25%. Although widely anticipated by the markets, Fed Chair Jerome Powell described the cut as a ‘risk-management’ adjustment in response to the rapidly cooling labour market. Indeed, following a disappointing July report, the August release early in the month was similarly poor, with only 22,000 jobs added (versus 75,000 expected) – and it was announced that 911,000 fewer jobs were added than initially estimated for the year to March 2025. Unemployment also rose to 4.3%, the highest rate since 2021. However, complicating the picture for the Fed was the fact that inflation has also remained elevated, with consumer prices up 2.9% year-on-year, driven by housing costs. Advocating a ‘meeting-by-meeting’ approach, the Fed did not indicate that this would be the start of an aggressive cutting cycle – though the bank’s updated ‘dot plot’ pointed towards a median expectation of 75 basis points in total cuts for 2025.
Despite the turbulent economic environment, investor excitement about Artificial Intelligence remained strong. Numerous announcements during the month helped sustain this enthusiasm, including Oracle’s expectation of over $500 billion in orders by year-end, and Nvidia’s plan to invest $100 billion in OpenAI. This broad rally also propelled Alphabet, Google’s parent company, to reach a $3 trillion valuation for the first time. Nevertheless, signs of fragility emerged in the tech rally late in the month, as increased volatility reflected doubts about the practicality and valuations of large-scale AI projects — particularly regarding the feasibility of powering vast new data centres.
Across the Atlantic, European markets navigated their own set of challenges – as France saw the government of Prime Minister Francois Bayrou fall after losing a confidence vote. Equity markets, however, took this in their stride as the S&P Euro Plus rose +1.85% whilst President Macron swiftly appointed a replacement – mitigating fears of prolonged instability. In the UK, inflation remained elevated, with the headline figure coming in at 3.8% and leading the Bank of England to pause rate cuts. In response to this environment, government bond yields in both the UK and Europe throughout the month, reflecting growing market concern over budget deficits and rising prices. The UK 30-year gilt hit levels unseen since 1998, peaking at 5.698% on 2nd September.
The US also pressured Europe to impose high tariffs on India and China to curb Russia’s oil revenue, adding further strain on European markets. At the global level, trade tensions returned to the forefront after constructive US-China talks in the middle of the month initially eased fears of new tariffs being implemented. However, President Trump announced that the US will impose a 100% tariff on branded or patented pharmaceutical products, 50% on kitchen cabinets, 30% on upholstered furniture, and 25% on heavy trucks beginning 1st October – further threatening to increase consumer prices and disrupt supply chains.
