Market Commentary - September 2025

September 2025

Stocks post solid gains in August in anticipation of Fed rate cut  

Global markets carried strong momentum through August, with stocks across the board posting solid gains. In the U.S., investor sentiment surged late in the month after Fed Chair Powell struck a dovish tone at the annual Jackson Hole Economic Policy Symposium, noting that the “shifting balance of risks” could warrant a policy adjustment. In plain terms, markets interpreted this as a green light for near-term rate cuts, sparking a powerful rally.

Small-cap stocks led the charge, with the Russell 2000 surging 7% in August to return to positive territory for the year. Mid-caps also participated, as the S&P 400 climbed 3.3%. Meanwhile, the Dow, S&P 500, and Nasdaq each set multiple new all-time highs, with the Nasdaq extending its lead among U.S. indexes, finishing August up 11.1% year-to-date. Corporate earnings continued to impress, with 81% of S&P 500 companies beating revenue and earnings estimates (FactSet). Overseas, developed international markets also reached new highs as the MSCI EAFE index jumped 4.1%, while emerging markets delivered more modest gains of 1.2%.

Economic data, however, painted a more complicated picture. Q2 GDP was revised up to 3.3% annualized but July’s jobs report was weaker than expected, with downward revisions to prior months and the unemployment rate ticking up to 4.2%. At the same time, inflation pressures eased and consumer sentiment slipped, reinforcing the likelihood of a September Fed rate cut. Bonds also benefited from this backdrop, as the Bloomberg Aggregate Bond Index gained 1.3% in August and the 10-year Treasury yield dipped to 4.23%.

September Update:

That momentum has carried into September. Markets are now pricing in three Fed rate cuts by year-end—one at the September 16–17 FOMC meeting, followed by additional cuts in November and December—for a total of 0.75%. Equities have continued to push higher, with the tech-heavy Nasdaq leading again, up 3.2% month-to-date through September 12 and 14.7% for the year. The Russell 2000 and S&P 400 also hit fresh YTD highs, reflecting broad participation in the rally. Internationally, developed markets have extended gains while emerging markets surged 5.5% in September to reach new highs for the year.

On the economic front, the labor market remains under pressure with more downward revisions to jobs data. Inflation has been mixed, with producer prices dipping in August but consumer prices surprising to the upside. For now, the market remains focused squarely on the Fed, with expectations firmly set on a 0.25% rate cut at the upcoming September meeting.

 Bonds continued their rally alongside equities, as the 10-year Treasury yield declined further to 4.06% and the Bloomberg Aggregate Bond Index added another 1.4% in September. That pushed its year-to-date gain to 6.4%, marking a new high for 2025.

The Outlook:  

Market momentum from the April tariff-driven low has carried through into September, with the Nasdaq, S&P 500, and Dow all setting multiple new all-time highs. Since the April low, the S&P 500 has surged 32% and the Nasdaq 45%, ending 9-12-25. Encouragingly, market breadth has improved over the past 3–6 months, as small- and mid-cap stocks joined the rally, both reaching year-to-date highs in September.

Diversification has been especially rewarding in 2025, with international equities leading the way thanks to a 10% decline in the U.S. dollar. At the same time, interest rates have moved lower in anticipation of Fed rate cuts beginning in September, with markets now pricing in three 0.25% cuts by year-end. The Fed has been on pause for 9-months since its last rate cut November 2024, as inflation risks have remained elevated. The Fed statement and Fed Chair Powell's comments will be carefully assessed by the markets.

Lower rates can provide additional support for equities, as long as economic and labor market conditions remain stable and inflation stays contained. Still, elevated valuations and the delayed effects of tariffs present risks. Recession risks have largely abated but stagflation risks (slow economic growth with sticky inflation) have remained elevated. Ongoing uncertainty around China and India trade negotiations adds to persistent geopolitical headwinds.

A consolidation or pullback of the powerful gains since April is inevitable—and normal within a long-term investment process. We continue to emphasize discipline, patience, and diversification as the best path forward.

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.  

~Your Nelson Securities Team     

*Past Performance is No Guarantee for Future Results; This article is for informational purposes only and does not constitute investment advice.