Overview & Outlook
September defied its reputation as a difficult month for equities, with major U.S. indexes reaching record highs and delivering their strongest September performance in more than a decade. Gains were driven by strong corporate earnings, enthusiasm for artificial intelligence, and the Federal Reserve’s long-awaited interest rate cut. However, weaker consumer confidence and mixed economic indicators reminded investors that challenges remain. As the fourth quarter begins, attention is focused on Federal Reserve policy, labor market data, and political risks including trade developments and the threat of a government shutdown.
U.S. Market Performance & Policy
Equities advanced broadly during the month. The S&P 500 rose 3.5 percent, the Nasdaq gained 5.5 percent, and the Dow added nearly 2 percent. Small-cap stocks also outperformed, with the Russell 2000 reaching record levels.
Technology and communications services led sector performance, supported by strong demand and AI-related momentum. Utilities and consumer discretionary stocks also posted solid returns, while consumer staples, energy, real estate, and financials underperformed.
Sentiment was buoyed by the Federal Reserve’s 0.25 percentage point cut, which lowered the federal funds rate to 4.00–4.25 percent. Expectations for further easing supported risk appetite, though investors remain mindful of elevated valuations and signs of labor market cooling. At month-end, concerns over a possible government shutdown began to weigh on outlooks, with the risk of delayed economic data releases adding further uncertainty.
Key Economic Data
The unemployment rate held steady at 4.3 percent, though hiring slowed. Consumer confidence declined sharply, with the Conference Board index dropping to its lowest level since April. Manufacturing activity remained weak but improved slightly, with the ISM index rising to 49.1. September’s services data was not released due to the shutdown, leaving August’s moderate expansion as the latest available reading.
Outlook
Markets enter the final quarter with cautious optimism. Monetary easing, robust corporate earnings, and resilient fundamentals provide support, while risks tied to valuations, consumer sentiment, and political developments remain key factors to monitor.