The month of September brought a dynamic shift in the markets, with stock indices reaching new peaks and the U.S. economy showing strong resilience. Recent reports highlighted robust growth in gross domestic product (GDP) and steady consumer spending, despite persistent questions about inflation and the Federal Reserve's policies.

Amidst this backdrop, the Federal Reserve implemented a much-anticipated interest rate reduction, aiming to bolster growth while closely monitoring inflationary pressures. Everyone, from Wall Street to individual investors, is keenly observing these developments.

In this update, we'll explore the latest economic indicators, Federal Reserve actions, and what they mean for your portfolio this autumn. Our continuous aim is to keep you informed and strategically prepared for the coming months.

Major U.S. Stock Indices

Throughout September, U.S. stock markets thrived, with the S&P 500 hitting historic highs near 6,700. Small-cap and value stocks led the charge, driven by lower interest rates and domestic growth, while technology, communications, and consumer sectors experienced significant gains.

Monthly performance highlights include:

• The S&P 500 increased by 3.53%.
• The Nasdaq 100 climbed 5.40%.
• The Dow Jones Industrial Average rose 1.87%.

Growth & Consumer Spending

The U.S. GDP surged at an annual rate of 3.8% in Q2, marking the strongest growth in almost two years following a significant upward revision. This strength was mainly fueled by resilient consumer spending, which rose 0.6% in August, surpassing expectations and driving growth across retail, travel, and durable goods — even amid higher tariffs and inflationary pressures.

Business investment presented a mixed picture. While housing-related expenditures dropped by 5.1% due to a cooling residential fixed investment, demand for corporate equipment and services remained stable, focusing on productivity improvements despite subdued broader capital expenditures.

Trade also contributed positively in Q2, with a notable decrease in imports narrowing the deficit and enhancing domestic growth. This shift, sparked by previous inventory adjustments and ongoing tariff impacts, offered a buffer for the U.S. economy during times of global uncertainty.

Consumer spending may continue to be a pivotal growth factor as housing and government expenditures show signs of waning. Resilient households are keeping the recovery moving forward, but it's crucial for investors to watch for pressures that could challenge this momentum as we approach the year-end.

Fed Policy Easing

In September, the Federal Reserve cut rates by 25 basis points, bringing the federal funds target to 4.00-4.25%. Policymakers considered a larger 50-basis-point cut, reflecting uncertainties surrounding persistent inflation versus rising slack in the labor market.

The Fed's economic projections in September raised growth expectations and signaled further cuts into late 2025 and early 2026, although they stressed a "data-driven" approach. The Federal Open Market Committee's (FOMC) projections showed consensus for at least one more rate cut before year-end.

Mortgage rates, hovering just above 6%, are anticipated to decrease through the end of the year, making home purchases and refinancing more affordable, thus supporting stronger demand from both households and businesses as borrowing costs fall.

Lower Fed rates are also expected to reduce financing costs for businesses, particularly enhancing access to operating loans and commercial real estate investments, freeing up capital for expansion and hiring. This favorable credit environment serves as a timely boost for small businesses and corporations planning major initiatives for 2026.

Labor Market & Inflation

Job growth in the U.S. slowed significantly in August, with only 22,000 positions added, while unemployment remained at 4.3%, a four-year high. Hiring mostly concentrated in healthcare, and demand for senior roles outpaced that for junior positions.

Inflation remained high at 2.9% year-over-year, with core prices up 3.1%. Wage increases at 3.7% barely kept pace with rising costs, leaving many consumers feeling the squeeze. The wealthiest 20% of earners accounted for about half of all spending through the second quarter of this year.

Federal Reserve Chair Jerome Powell faces a delicate balance: the slowing labor market eases the pressure for aggressive inflation measures, but persistent price hikes are still weighing on household budgets and economic sentiment. Significant shifts in employment or inflation data could prompt changes in monetary policy or unsettle investors in the coming months.

Navigating the Markets

September concluded with the U.S. economy exhibiting steady progress despite ongoing discussions about inflation and interest rates. Stock markets achieved new milestones, backed by strong consumer spending, optimism around Fed rate cuts, and shifts into technology and value stocks. However, a looming government shutdown at the beginning of October unsettled the stock markets.

As the markets continuously evolve, remember that you don't have to navigate this alone. Feel free to contact our team with any inquiries or concerns.