By: Michael Sellers
Partner, Portfolio Manager
September is typically a month investors would prefer to forget given its history as the weakest month for stock market returns. This time, however, proved different.
The S&P 500 gained 3.5%, the Nasdaq advanced 5.6%, and the Dow added 1.9%. For both the S&P 500 and Nasdaq, this marked their strongest September performances in 15 years and represented the S&P 500’s fifth consecutive month of positive gains.
While large caps led the rally, the Russell 2000 small-cap index also broke through to its first record high since November 2021, ending a 967-day stretch without setting a new peak.
A September to Remember
Market strength was buoyed by the Federal Reserve’s 25 basis point cut after its September meeting, marking the first cut since December 2024. In his press conference, Chair Powell highlighted signs of continued labor market weakness taking precedence over sticky inflation data that is still ahead of the Fed’s self-imposed 2% target.Technology shares were another key driver, fueled by optimism around AI-related spending and high-profile announcements from mega-cap names including Oracle, Nvidia, Amazon, Meta and Google.
What does a strong September mean for the remainder of the year? History suggests that the fourth quarter tends to be strong, with markets averaging a 4.2% gain over the final three months of the year. We caution, as always, that historical analogues should be used as suggestions and not doctrine.
The quarter begins with some uncertainty following the October 1 government shutdown. While shutdowns have historically had little lasting impact on markets and the economy, a prolonged disruption could complicate the Fed’s decision-making by delaying key inflation and employment data ahead of its October 28–29 meeting.
Earnings season begins in just two weeks, and expectations are running high again. FactSet projects year-over-year growth of 7.9%, which would mark the ninth consecutive quarter of positive earnings growth if realized. Earnings have been a key driver of the current equity market rally. With most valuation metrics screening expensive, there is likely little room for error this reporting season.
That said, the economy appears to be on solid footing as we enter the final quarter of the year. The Atlanta Fed is tracking third-quarter GDP growth at 3.8%, consumers remain resilient, credit quality is holding up, and corporate earnings are projected to grow both this year and next. As always, we continue to closely monitor labor market trends and their impact on consumer spending, inflationary pressures, and the evolving geopolitical backdrop.
It was a September to remember for the right reasons, which should bode well as we look outwardly into the remainder of 2025 and into 2026. Even so, we continue to remind clients of the importance of maintaining a long-term perspective and remaining disciplined and diligent in portfolio allocations.
