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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.

Overview

CTI Capital’s monthly review finds that markets entered August cautiously after record-setting July gains. Early weakness came from soft labor data, tariff concerns, and rising bond yields. Resilient corporate earnings and expectations of a Federal Reserve policy shift helped stabilize sentiment by month-end.

U.S. Market Performance & Policy

On August 1, equities sold off sharply, with the Dow down 500 points. Still, the S&P 500 stayed more than 25% above April lows and the Nasdaq over 35% higher, lifted by Microsoft, Meta, and other large firms.

Focus shifted quickly to the Fed. Futures priced in an ~89% chance of a September rate cut, supported by weaker data and policymakers’ willingness to ease if needed.

Key Economic Data (FRED):

• Fed Funds Rate: 4.33% (unchanged in July)
• Unemployment: 4.2%, up from June
• M2 Money Supply: $22.1 trillion, rising gradually

Consumer & Corporate Trends

Confidence softened as the Conference Board index fell to 97.4, with inflation expectations at 6.2% on essentials. At the same time, U.S. buybacks topped $1 trillion YTD, led by Apple, Alphabet, and JPMorgan.

Economic activity was mixed but resilient: manufacturing hit a three-year high at 53.3, while services held at 55.4, signaling expansion despite cost pressures.

Canadian Market Update

The S&P/TSX Composite hovered near 22,500 in August, weighed by softer energy prices but supported by financials and industrials. Oil slipped below $77, dragging resource stocks lower, though banks and infrastructure names held firm.

BNN Bloomberg highlighted investor focus on Bank of Canada policy. Markets now see elevated odds of an October rate cut as inflation cools. Housing activity steadied, with sales volumes improving in Ontario and British Columbia despite high mortgage rates.

The Globe and Mail’s Report on Business noted strong bank earnings, underpinned by robust capital and stable credit quality. Corporate investment in technology and infrastructure continues to offset commodity headwinds, suggesting moderate but steady growth heading into the fall.

Outlook

In the U.S., strong earnings and the prospect of Fed easing support cautious optimism. In Canada, resilient banks and central bank flexibility provide stability, though energy markets and trade remain watchpoints.