A Strong September
S&P 500 and Nasdaq score their best September in 15 years.
The S&P 500 and Nasdaq posted their strongest September in 15 years. September 2025 was notable as investors navigated Federal Reserve policy changes, moderating inflation, and ongoing economic resilience. The Fed implemented its first interest rate cut of the cycle, which investors interpreted as a positive sign for potential economic support, though risks remain from inflation and global trade uncertainties.
U.S. Economy
Second-quarter GDP was revised upward to 3.8% annualized growth, rebounding sharply from the first quarter’s 0.6% contraction. Growth reflected stronger consumer spending and business investment, particularly in artificial intelligence infrastructure. Inflation, however, remained a concern: August’s Consumer Price Index (CPI) rose 0.4% month-over-month and 2.9% year-over-year, signaling continued price pressures.
Corporate earnings exceeded expectations, with the S&P 500 reporting 11.8% year-over-year earnings growth. While strong earnings helped support valuations, the forward 12-month P/E ratio of 22.5 remained above 5- and 10-year averages, which may reflect investor optimism about future growth but also introduces valuation risk.
Consumer sentiment declined in September, with the University of Michigan Index dropping to 55.1 from 58.2. Survey respondents cited inflation, tariffs, and labor market conditions as concerns.
Against this backdrop, U.S. equity markets delivered solid gains for September, with all four major indexes advancing:
- The DJIA rose 1.9%;
- The S&P 500 gained 3.53%;
- NASDAQ climbed 5.6%; and
- The Russell 2000 added 3.6%.
Global Markets Advance on Fed Rate Cut Optimism
International equity markets were mixed, with developed economies showing relative strength and emerging markets experiencing more uneven performance. Commodity markets remained volatile, with crude oil balancing supply and demand factors, while gold continued to attract interest as a hedge against inflation and geopolitical risks.
The Federal Reserve’s pivot to rate cuts provided a supportive backdrop for global risk assets, though regional divergences remained pronounced.
Developed international equities broadly advanced, supported by improving economic data in Europe and stabilization in Asia-Pacific markets. Investors welcomed signs that inflation pressures were moderating in several major economies, allowing central banks greater flexibility in monetary policy decisions.
Emerging markets displayed more mixed performance, with results heavily influenced by country-specific factors including trade policy developments, commodity price movements, and domestic economic conditions. Several Asian markets benefited from continued strength in technology and manufacturing sectors, while other regions faced headwinds from currency pressures and political uncertainty.
Volatility remained relatively contained throughout September, with the CBOE Volatility Index (VIX) holding near mid-teens levels. This stability helped sustain investor confidence despite ongoing concerns about geopolitical tensions and global trade dynamics.
Commodities presented a mixed picture. West Texas Intermediate crude oil fluctuated within a relatively narrow range as markets balanced supply considerations against demand concerns. Gold continued to attract interest as a hedge against inflation and geopolitical uncertainty, maintaining its position near historical highs amid expectations for further Federal Reserve rate cuts.
Sector and Index Performance
International investors saw generally positive results in September, though performance varied considerably across regions. Developed markets demonstrated relative strength, while emerging markets showed more uneven outcomes reflecting divergent economic and policy conditions.
| Index Returns | Sept 2025 |
| MSCI EAFE | +1.64% |
| MSCI EUROPE | +1.93% |
| MSCI FAR EAST | +1.44 |
| MSCI G7 INDEX | +3.19% |
| MSCI NORTH AMERICA | +3.56% |
| MSCI PACIFIC | +0.94% |
| MSCI PACIFIC EX-JAPAN | -0.50% |
| MSCI WORLD | +3.09% |
| MSCI WORLD ex USA | +1.86% |
Source: MSCI. Past performance cannot guarantee future results
Eight of the eleven S&P 500 sectors advanced in September. Technology and Communication Services performed strongly, supported by artificial intelligence investment and digital advertising trends. Utilities provided defensive gains, while Consumer Staples and Materials lagged.
Selected international index returns for September:
- MSCI EAFE: +1.64%
- MSCI Europe: +1.93%
- MSCI North America: +3.56%
- MSCI Pacific ex-Japan: –0.50%
Sources: MSCI, S&P Dow Jones Indices. Financial Media Exchange is not affiliated with MSCI, S&P Dow Jones, FactSet, or any index provider referenced.
Economic Indicators
- GDP (Q2 2025): 3.8% annualized growth (revised upward).
- Inflation (August CPI): +0.4% month-over-month, +2.9% year-over-year.
- Retail Sales (August 2025): +0.5% month-over-month, +3.9% year-over-year.
- Consumer Sentiment (September 2025): 55.1, down from 58.2.
- Pending Home Sales: –0.4% month-over-month; +0.7% year-over-year.
The Atlanta Federal Reserve’s GDPNow model (an economic forecasting tool, not an investment projection) estimated third-quarter growth at ~3.9%. This is an economic estimate, not a guarantee of actual results.
Risks and Considerations
While September’s performance was strong, risks remain:
- Inflationary pressures could constrain monetary policy flexibility.
- Global trade policy and tariffs remain uncertain.
- Elevated equity valuations increase sensitivity to earnings disappointments.
Below is a breakdown of estimated sector returns for September, illustrating both leadership changes and the breadth of market participation:
| Sector Performance | Sep-25 | YTD |
| S&P 500 Health Care Sector | 1.62% | 1.20% |
| S&P 500 Information Technology Sector | 7.21% | 21.75% |
| S&P 500 Industrials Sector | 1.72% | 17.07% |
| S&P 500 Materials Sector | -2.31% | 7.73% |
| S&P 500 Real Estate Sector | -0.14% | 3.47% |
| S&P 500 Consumer Staples Sector | -1.82% | 2.04% |
| S&P 500 Utilities Sector | 3.97% | 15.13% |
| S&P 500 Financials Sector | 0.04% | 11.49% |
| S&P 500 Communication Services Sector | 5.53% | 23.69% |
| S&P 500 Consumer Discretionary Sector | 3.12% | 4.74% |
| S&P 500 Energy Sector | -0.52% | 4.27% |
Source: S&P Dow Jones Indices
Financials posted gains as investors anticipated benefits from a steepening yield curve and continued strong loan demand. The sector’s performance was supported by generally positive second-quarter earnings reports and constructive outlooks for net interest margins.
Energy showed strength despite volatile oil prices, supported by continued discipline in capital spending and healthy cash flow generation across the sector. Materials also advanced, reflecting ongoing demand from infrastructure projects and industrial activity.
Consumer-related sectors presented a more mixed picture. Consumer Discretionary showed moderate gains, though concerns about stretched household budgets tempered enthusiasm. Consumer Staples delivered modest positive returns, appealing to investors seeking defensive positioning.
Health Care advanced as pharmaceutical companies benefited from reduced regulatory concerns, while Real Estate posted gains amid anticipation that lower interest rates would support property valuations. Utilities provided modest positive returns, offering income-oriented investors a defensive alternative.
2Q2025 GDP Revised Higher to 3.8%
In the second quarter of 2025 (April-June), real Gross Domestic Product (GDP) increased at an annual rate of 3.8%, according to the BEA’s third estimate released in late September. This represented an upward revision from the 3.3% second estimate and a significant improvement from the first quarter’s 0.6% contraction.
The increase in GDP primarily reflected a decrease in imports—which, as a subtraction in the GDP formula, contributes positively when falling—and robust growth in consumer spending. These increases were partly offset by decreases in investment and exports. The upward revision was primarily driven by stronger-than-previously-estimated consumer spending, particularly in services.
Business investment showed notable strength, particularly in intellectual property products. Software investment skyrocketed at an annualized rate of 198% in the second quarter, fueled by strong corporate demand for digital transformation and artificial intelligence-related capabilities. This marked the strongest advance since the late-1990s information technology boom.
Real final sales to private domestic purchasers—a measure that excludes trade, inventories, and government spending—increased 2.9% in the second quarter, indicating solid underlying momentum in private sector activity despite external headwinds.
The PCE price index ((Personal Consumption Expenditures index, a measure of consumer spending) rose 2.1% on a year-over-year basis, while the core PCE index (excluding food and energy) gained 2.5%, reflecting continued but moderating inflationary pressures.
Atlanta Federal Reserve’s GDPNow model estimated third-quarter growth at approximately 3.9% (Note: This is an external economic estimate, not an investment forecast).
August Inflation Shows Continued Pressure
In August 2025, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% on a seasonally adjusted basis, accelerating from July’s 0.2% increase. Over the past 12 months, inflation increased 2.9%, up from 2.7% in July. The core CPI (all items less food and energy) rose 0.3% in August and was up 3.1% year-over-year, unchanged from July.
Food prices contributed notably to August’s inflation, rising 0.5% for the month after remaining unchanged in July. Grocery prices increased 0.6%, the largest monthly gain since August 2022. Fruits and vegetables jumped 1.6%, with tomatoes up 4.5% and apples rising 3.5%. Meats, poultry, fish and eggs increased 1.0%, with beef prices climbing 2.7%.
Within core CPI, shelter costs rose 0.2% for the month, with owners’ equivalent rent and rent each up 0.3%. Medical care increased 0.7%, including notable gains in dental services (+2.6%) and hospital services (+0.4%), while prescription drugs fell 0.2%.
Transportation-related costs showed mixed movements. Airline fares climbed 4.0%, while used cars and trucks rose 0.5%. New vehicle prices were unchanged for the month.
The energy index increased 0.7% in August, driven by a 1.9% increase in gasoline prices and higher electricity costs (+0.2%), partially offset by another decline in utility gas service prices (-1.6%). Over the 12-month period, energy was up just 0.2%, with gasoline prices down 6.1% year-over-year.
Core goods prices excluding vehicles rose a modest 0.13%, the smallest gain since March, suggesting that tariff-related price pressures remained relatively contained. Apparel prices rebounded 0.5% after earlier declines.
Strong Corporate Earnings Momentum Continues
Research firm FactSet provided updated metrics for S&P 500 companies as of late September, highlighting the continued strength in corporate profitability:
Earnings Scorecard: For Q2 2025 (with 98% of S&P 500 companies having reported actual results), 81% of companies reported a positive EPS surprise and 81% reported a positive revenue surprise. These figures exceeded both 5-year and 10-year historical averages.
Earnings Growth: The blended (year-over-year) earnings growth rate for the S&P 500 in Q2 2025 reached 11.8%, marking the third consecutive quarter of double-digit earnings growth for the index. This represented a significant improvement from the 4.9% growth rate estimated at the end of the second quarter.
Earnings Revisions: Nine sectors reported higher earnings for Q2 2025 compared to June 30 estimates, driven by positive earnings surprises. The Communication Services, Information Technology, and Financials sectors were the largest contributors to the upward revisions.
For Q3 2025, the estimated earnings growth rate stood at 7.9% (based on FactSet estimates; these projections are not guarantees of future performance).
Valuation: The forward 12-month P/E ratio for the S&P 500 was 22.5, above the 5-year average of 19.9 and the 10-year average of 18.5, reflecting continued investor confidence in future earnings growth despite elevated valuations.
Consumer Sentiment Declines in September
Consumer sentiment declined in September, falling approximately 5% from August to a reading of 55.1. This marked the second consecutive monthly decrease and returned sentiment closer to the low levels seen in April and May. While sentiment remained higher than those spring readings, it continued to trail levels from six and twelve months prior.
The decline was broad-based, spanning consumers across age groups, income levels, and education backgrounds. All five index components showed decreases, with particularly notable weakness among lower and middle-income consumers. A key exception emerged among consumers with larger stock holdings, whose sentiment held steady, while those with smaller or no holdings saw sentiment decrease.
Macroeconomic expectations weakened across multiple dimensions. Consumers expressed increased concerns about labor market conditions and business prospects. Importantly, personal expectations also softened, with consumers reporting less confidence in their own income trajectories and personal financial situations.
Trade policy remained highly salient, with approximately 60% of consumers providing unprompted comments about tariffs during September interviews—essentially unchanged from August. This persistent focus on tariff policy reflected ongoing uncertainty about the economic impacts of trade measures.
Confidence in purchasing durable goods declined to its lowest point in a year, suggesting consumers were postponing major purchases amid concerns about prices and economic conditions. Assessments of current personal finances declined by approximately 8% from the previous month.
Retail Sales Show Modest Growth in August
In August 2025, total retail and food services sales reached an estimated $726.3 billion, reflecting a 0.5% increase compared to July and a 3.9% increase from August 2024. The moderate monthly gain suggested continued consumer spending resilience despite elevated concerns about inflation and economic conditions.
The July data was revised upward, with sales now reported at $722.6 billion—a 0.9% gain from June, higher than previously estimated. This upward revision provided additional evidence of consumer spending strength through mid-2025.
Over the three-month period from June through August 2025, sales were 3.9% higher than the same period in 2024, indicating sustained year-over-year growth momentum. Looking at the retail-only category (excluding food services), sales increased 3.7% year-over-year.
Key sector highlights included strong performance in nonstore retailers (such as online outlets), which posted an 8.0% year-over-year increase, demonstrating the continued shift toward e-commerce. Food services and drinking places rose 5.6% over the past year, reflecting resilient demand for dining out despite higher prices.
The data suggested consumers continued to spend on essentials and experiences, though the pace of growth remained moderate relative to historical norms, consistent with a more cautious consumer mindset.
Pending Home Sales Edge Lower
In August 2025, the U.S. Pending Home Sales Index declined by 0.4% month-over-month, with signed contracts for previously owned homes falling slightly more than economists had expected. On an annual basis, pending home sales were up 0.7% year-over-year, suggesting modest improvement from prior-year levels despite monthly volatility.
Regional data showed varied momentum across the country. In the Northeast, pending home sales decreased 0.6% month-over-month and were down 0.6% year-over-year. The Midwest experienced a sharper drop of 4.0% month-over-month, though still posted a 1.3% annual gain. The South held relatively steady with a 0.1% monthly decrease but showed 1.8% growth year-over-year. In the West, pending sales rose 3.7% from July, though year-over-year they remained 1.9% lower.
The mixed regional performance reflected differing dynamics across local housing markets, with some areas constrained by limited inventory and affordability challenges while others benefited from improving buyer interest as mortgage rates moderated in anticipation of Federal Reserve rate cuts.
The National Association of Realtors’ Confidence Index survey revealed that 16% of members expected buyer traffic to increase over the next three months—unchanged from a year ago—while 21% expected an increase in seller traffic, up from 17% in August 2024. This suggested cautious optimism about future market activity as the prospect of lower interest rates began to influence market psychology.
Manufacturing Surveys Show Regional Divergence
The September 2025 regional Federal Reserve manufacturing surveys presented sharply contrasting pictures of industrial activity across different parts of the country.
The Dallas Fed Texas Manufacturing Outlook Survey continued to show strength, with production maintaining elevated levels and new orders improving from earlier in the summer. Capacity utilization remained in positive territory, indicating healthy demand for manufacturing output in the region. Employment conditions held steady, though firms remained cautious about near-term expansion plans given ongoing uncertainty about trade policy and input costs.
In contrast, the Richmond Fed’s September 2025 survey painted a more challenged picture for the Fifth District. While specific September figures were not yet available at month-end, recent trends showed manufacturing activity under pressure from weaker new orders and softer shipments. Employment conditions in the region’s manufacturing sector showed signs of stabilization after earlier declines, though firms maintained a cautious outlook for the coming months.
The divergence between regions reflected varying industry concentrations and different exposures to key end markets. Energy-producing regions benefited from sustained oil and gas activity, while areas more heavily concentrated in traditional manufacturing faced headwinds from moderating demand and ongoing adjustments to supply chain reconfigurations.
Six-month outlook indices across most regions remained positive but cautious, with manufacturers expressing confidence in longer-term growth