U.S. equities extended their rally in September, led by technology and communication services, as the Federal Reserve’s mid-month rate cut provided renewed support for valuations.
Economic data sent mixed signals: payroll growth slowed to just 22,000 in August with unemployment at 4.3%, while consumer spending remained resilient and GDP for Q2 was revised sharply higher to 3.8%
Inflation pressures remained elevated but manageable, with Core PCE holding at 2.9%; the divergence between labor market weakness and resilient consumption keeps Fed policy finely balanced.
The S&P 500 trades at 22.8x forward earnings, though equal-weighted valuations are more moderate at 17.9x, underscoring both the narrow concentration in mega-caps and opportunities across broader market sectors.
The Fed’s first rate cut of 2025 drove initial Treasury yield declines, but rates rebounded into month-end; the 10-year finished at 4.15%, with policymakers signaling a cautious, data-driven approach to further easing.
The U.S. government shut down at 12:01 a.m. EDT on October 1, 2025, after Congress failed to pass appropriations for fiscal year 2026, marking the 21st shutdown in modern history. Approximately 900,000 federal employees were furloughed, with essential services continuing while many agencies faced disruptions.
Equity Markets
September delivered another strong month for U.S. equities, with the S&P 500 and Nasdaq extending their rallies despite the historical tendency for September weakness.
The primary catalyst came mid-month when the Federal Reserve cut rates, providing fresh fuel to valuations—particularly in the technology and communication services sectors, where momentum has shown little sign of slowing. Optimism around further Fed easing into year-end supported investor risk appetite, with futures markets still pricing in roughly 42bps of additional cuts, though expectations have moderated slightly from earlier highs. The S&P 500 briefly tested the 6700 level before fading, with that resistance aligning with headlines around a potential government shutdown.
Economic data remained uneven. August payrolls came in well below expectations at just 22,000, while the unemployment rate ticked higher to 4.3%, signaling continued softening in the labor market. In contrast, personal income and spending data painted a more resilient picture of consumer activity, helping offset some of the employment weakness. Inflation data was largely in line with expectations, with Core PCE at 2.9%, while second-quarter GDP was revised sharply higher to 3.8%, highlighting the underlying strength of the U.S. consumer.
The divergence between moderating employment, resilient consumption, and still-elevated inflation leaves the Fed balancing its dual mandate. For markets, though, the overriding takeaway was the September rate cut and the expectation of further easing—drivers that helped power indexes to fresh highs and underscored the extent to which monetary policy remains one of the dominant forces in sustaining equity momentum.
S&P 500 valuations remain at the high end of historical ranges, with the index currently trading at 22.8x forward earnings. However, this headline number masks a stark divergence beneath the surface. The concentration of the “Magnificent Seven,” which trade at significantly higher multiples, has pushed overall index valuations higher. In contrast, the equal-weighted S&P 500—which removes the outsized impact of these mega-cap names—trades at a more modest 17.9x forward earnings, a level much closer to historical norms. This gap highlights both the valuation premium embedded in a narrow segment of the market and the relative attractiveness of broader U.S. equities once the mega-cap effect is stripped away. We believe that balancing exposure to growth with other, relatively cheaper sectors is a prudent strategy at this stage, and for investors whose portfolios have become overly concentrated in growth, this may be an opportune time to rebalance.
Momentum and Crosscurrents
Momentum and Crosscurrents
Performance Review & Outlook
Highlights
U.S. equities extended their rally in September, led by technology and communication services, as the Federal Reserve’s mid-month rate cut provided renewed support for valuations.
Economic data sent mixed signals: payroll growth slowed to just 22,000 in August with unemployment at 4.3%, while consumer spending remained resilient and GDP for Q2 was revised sharply higher to 3.8%
Inflation pressures remained elevated but manageable, with Core PCE holding at 2.9%; the divergence between labor market weakness and resilient consumption keeps Fed policy finely balanced.
The S&P 500 trades at 22.8x forward earnings, though equal-weighted valuations are more moderate at 17.9x, underscoring both the narrow concentration in mega-caps and opportunities across broader market sectors.
The Fed’s first rate cut of 2025 drove initial Treasury yield declines, but rates rebounded into month-end; the 10-year finished at 4.15%, with policymakers signaling a cautious, data-driven approach to further easing.
The U.S. government shut down at 12:01 a.m. EDT on October 1, 2025, after Congress failed to pass appropriations for fiscal year 2026, marking the 21st shutdown in modern history. Approximately 900,000 federal employees were furloughed, with essential services continuing while many agencies faced disruptions.
Equity Markets
September delivered another strong month for U.S. equities, with the S&P 500 and Nasdaq extending their rallies despite the historical tendency for September weakness.
The primary catalyst came mid-month when the Federal Reserve cut rates, providing fresh fuel to valuations—particularly in the technology and communication services sectors, where momentum has shown little sign of slowing. Optimism around further Fed easing into year-end supported investor risk appetite, with futures markets still pricing in roughly 42bps of additional cuts, though expectations have moderated slightly from earlier highs. The S&P 500 briefly tested the 6700 level before fading, with that resistance aligning with headlines around a potential government shutdown.
Economic data remained uneven. August payrolls came in well below expectations at just 22,000, while the unemployment rate ticked higher to 4.3%, signaling continued softening in the labor market. In contrast, personal income and spending data painted a more resilient picture of consumer activity, helping offset some of the employment weakness. Inflation data was largely in line with expectations, with Core PCE at 2.9%, while second-quarter GDP was revised sharply higher to 3.8%, highlighting the underlying strength of the U.S. consumer.
The divergence between moderating employment, resilient consumption, and still-elevated inflation leaves the Fed balancing its dual mandate. For markets, though, the overriding takeaway was the September rate cut and the expectation of further easing—drivers that helped power indexes to fresh highs and underscored the extent to which monetary policy remains one of the dominant forces in sustaining equity momentum.
S&P 500 valuations remain at the high end of historical ranges, with the index currently trading at 22.8x forward earnings. However, this headline number masks a stark divergence beneath the surface. The concentration of the “Magnificent Seven,” which trade at significantly higher multiples, has pushed overall index valuations higher. In contrast, the equal-weighted S&P 500—which removes the outsized impact of these mega-cap names—trades at a more modest 17.9x forward earnings, a level much closer to historical norms. This gap highlights both the valuation premium embedded in a narrow segment of the market and the relative attractiveness of broader U.S. equities once the mega-cap effect is stripped away. We believe that balancing exposure to growth with other, relatively cheaper sectors is a prudent strategy at this stage, and for investors whose portfolios have become overly concentrated in growth, this may be an opportune time to rebalance.
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