U.S. equities delivered strong gains in September, a month that often leans weaker seasonally. The S&P 500 rose about 3.5 percent and the Nasdaq gained roughly 5.6 percent, marking the best September in over 15 years.
Participation was somewhat uneven. Large-cap technology and growth companies remained important drivers of performance, while small-cap benchmarks showed less momentum. At the same time, several cyclical and industrial sectors added to gains, providing signs of broader participation.
The rally was supported by expectations of Fed easing, firmer earnings guidance, and sustained investor interest in long-term growth themes such as artificial intelligence.
1. Fed Begins to Ease, But Signals Remain Mixed
The Fed cut its policy rate by 0.25% in September – the first reduction since December 2024. Chair Powell described it as a “risk management” step, aimed at cushioning the economy as job growth slowed, not the start of an aggressive stimulus cycle. Policymakers remain divided: some see a case for much deeper cuts, others for none at all. Outside the U.S., the ECB and BOE both held rates steady in September after cutting earlier this year, while the BOJ left its policy rate unchanged at 0.5%. The Fed has begun easing, and while policymakers hold differing views, the broader direction is toward a more supportive environment. This shift reinforces the value of staying invested and disciplined. Portfolios aligned with long-term goals are positioned to benefit as the Fed adjusts gradually to changing conditions.
2. Inflation Data Sends Mixed Messages
Disinflation continues, but not uniformly. In August, core PCE (the Fed’s preferred measure) rose 2.9% year-over-year, the lowest in two years but still above the 2% target. CPI was also 2.9%, up from July, with energy prices driving the increase. PPI surprised to the downside, falling 0.1% month-on-month, and slowing to 2.6% year-over-year, underscoring weak input cost pressures. Together, the data shows progress but not victory: inflation is cooling, yet volatile components like energy can still flare.
3. Labor Market Weakness Reframes the Cycle
Employment data is showing the first signs of softening, but investors should remember the labor market is a lagging indicator. Revisions revealed 911,000 fewer jobs created from April 2024 to March 2025 than initially reported, and unemployment has edged up to 4.3%. While payrolls stalled over the summer, part of this weakness likely reflects the brief tariff shock earlier in the year, which temporarily slowed hiring plans and dented business confidence. With trade tensions easing and input costs moderating, the negative pressure on jobs may not persist. The labor market tends to adjust with a delay, so current softness could be more reflective of past uncertainty than of today’s outlook. For portfolios, the key is not to overreact: wage pressures are easing, which supports the Fed’s fight against inflation, and employment conditions should stabilize as the economy absorbs the tariff disruption.
4. Bonds Offer Income, Credit Still Open
The Fed’s cut pulled down short-term yields, while longer maturities held firm. By late September, the 2-year Treasury yielded around 3.6% and the 10-year about 4.2%. Corporate credit markets remained open: September saw the strongest investment-grade issuance for any September on record, with more than $207 billion of new supply absorbed by strong demand. High-quality corporates offered yields in the 5–6% range, while Treasurys provided yields in the 3.5–4.7% range.
5. Government Shutdown
The U.S. government began a shutdown on October 1. Historically, shutdowns (especially shorter ones) have had limited long-term market impact — e.g. the 2013 shutdown lasted 16 days and saw moderate stock gains, and even the longest 2018–19 shutdown didn’t derail markets over the following months. Still, this time, the bigger near-term effect will likely be delayed economic indicators (jobs, inflation, etc.), which clouds visibility for investors and the Fed. If funding is restored quickly, most of the economic costs tend to be recouped. But if it drags on, confidence, regulatory backlogs, and business activity may suffer more meaningfully.
Bottom Line
September brought important shifts — the Fed has begun easing, inflation is moving lower if unevenly, and the labor market is showing modest softening. These are not signals of an ending cycle, but part of a gradual adjustment in policy and growth. The message for investors is steadiness. Equities continue to have support from both growth and policy, while bonds are once again a reliable source of real income. Keeping portfolios aligned with long-term goals, emphasizing quality holdings, and maintaining sufficient liquidity remain the most effective ways to navigate this environment without being distracted by short-term headlines.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable. Gryphon, however, cannot guarantee the accuracy or completeness of such information. Gryphon does not provide tax, accounting or legal advice, and nothing contained in these materials should be taken as tax, accounting or legal advice. Individuals should seek such advice based on their own particular circumstances from a qualified tax, accounting or legal advisor.