September Market Update 2025

Posted by Bedrock on 1st October 2025

September Market Update 01.10.2025

 
“Doubt is not a pleasant condition, but certainty is absurd” 

— Voltaire

Summary

• Markets have defied seasonal weakness, with global equities rising over 3% in September and notching their 6th consecutive monthly gain. US tech had a strong month, but the standout asset was gold, which surged over 11%.
• The rally in risk assets largely underpinned by an accommodative Fed, which delivered a 25bp cut as concerns about a weakening labour market overshadowed inflation. Markets expect further easing throughout the rest of 2025 and into 2026.
• The announcements of significant AI-related investments reignited enthusiasm around the buildout of AI infrastructure, boosting tech stocks but also raising concerns about overcapacity and the sustainability of valuations.
• Heading into Q4, assets seem priced for perfection and valuations leave little room for error. With a complex macro backdrop and a host of risks to the outlook, we believe a cautious stance is warranted.

September defies historical weakness

We flagged in our last newsletter that September has historically been a challenging month for markets. While the extent to which this is a meaningful seasonal pattern or just a statistical quirk remains a matter for debate, they have clearly bucked the trend this time around. Global stock markets finished September up well over 3%, their sixth consecutive positive month, underpinned by an accommodative Fed and a resurgence in optimism around AI-related demand. US tech stocks led the charge, with the NASDAQ posting its best September in 15 years. Fixed income markets were relatively subdued, though positive, and the standout performer was actually gold, which surged 11%; this leaves the yellow metal up over 40% YTD and at all-time inflation-adjusted highs.

“Global stock markets finished September up well over 3%, their sixth consecutive positive month”

The Fed delivers its first cut of 2025 as the US labour market softens 

Economic data releases have continued to paint a mixed picture of the US economy. On the one hand, we saw the Q2 GDP growth figure revised upwards from +3.3% (YoY, annualised) to an impressive +3.8%, driven in part by solid consumer spending. However, this also reflected a significant decrease in imports following Trump’s Liberation day tariff announcements, a natural inversion of the frontloading we saw in Q1 (which was a meaningful contributor to the negative Q1 GDP print) and certainly not a clear indicator of economic strength. Meanwhile, the labour market continued to show signs of cooling; the JOLTS and nonfarm payroll figures for August disappointed, there were another set of downwards revisions to payroll figures for the previous two months, and the unemployment rate edged up to 4.3%. All of this suggests the resilience in the US labour market – a key pillar of economic strength in the post-Covid era – is starting to fade. With the downside risks to the labour market starting to overshadow the upside risks to inflation, markets had fully priced in a cut at the Fed’s mid-September meeting – even as core CPI picked up to +0.4% MoM (+2.9% YoY). The Fed did not disappoint, delivering a near-unanimous 25bps cut, with the only dissenter being recent Trump appointee Stephen Miran, who was in favour of 50bps. The dot plot pointed to two further cuts in 2025 but Powell was quick to flag that further decisions would be data dependent and made on a “meeting-by-meeting” basis. This somewhat tempered confidence in the pace of easing and, in combination with some more upbeat labour data towards month-end, pushed short-end Treasury yields back up to where they started the month. Nonetheless, investors are still pricing just under 50bps of cuts before year-end (i.e., a high probability of 25bps cuts at the next two meetings) and over 50bps throughout 2026, so the base case remains for significant easing from here. Elsewhere, central bank meetings went largely as expected, with the Bank of England, ECB, and Bank of Japan all holding their policy rates steady. That said, there was a surprising split vote in Japan as two members pushing for a hike, which drove Japanese government bond yields to post-2008 highs.

Surge in AI investment reignites optimism and valuation concerns

Monetary policy was not the only story moving markets. We also saw a spate of massive AI investment towards the tail end of September; OpenAI signed a deal to buy $300bn of data center capacity from Oracle over the next 5 years, sending Oracle’s share price soaring (+36% on the day), while Nvidia announced a $5bn investment in Intel and plans to invest $100bn in OpenAI. This helped to reignite enthusiasm around the AI infrastructure build out and lifted the entire tech sector. However, it also raised some eyebrows, with Nvidia’s investment in a major customer reminiscent of some of the circular financing arrangements seen in the Dot Com bubble. We think that the parallels being drawn with the early 2000’s tech bubble are generally overdone, simply due to the fact that the mega-cap tech companies that have continued to drive markets are incredibly profitable and have repeatedly justified their multiples with real earnings growth. That said, there is a real risk that expectations for future earnings growth are overinflated and that there might not be sufficient demand to satisfy the enormous amount of AI-related capacity being built out. It is not hard to find historical examples of genuinely transformational technologies that failed to generate the return on investment expected due to just this… US railroads in the mid-1800s come to mind. 

A cautious outlook is warranted in light of risks

All-in-all, we enter the last stretch of 2025 with a cautious outlook. Risk assets are at all-time highs and for valuations to hold, we will need (a) the Fed to continue easing policy to support growth without letting inflation run away – delivering a Goldilocks soft landing – and (b) earnings growth, particularly as it relates to AI-related demand, to maintain its momentum. This is not out of reach, but we believe that the balance of risks skews heavily to the downside and investors are overly complacent. Political uncertainty remains elevated. The French government has collapsed once again and new PM Sebastien Lecornu has been unable to pass a cost-cutting budget, exacerbating worries about the country’s (and Europe’s) fiscal trajectory. Meanwhile, the US government is now entering a shut down until a new funding bill can be agreed on, furloughing hundreds of thousands of Federal employees and potentially weighing meaningfully on economic growth if it drags on too long. We also have the more familiar risks to deal with, including Trump’s unpredictability – particularly as it relates to trade policy and the Fed’s independence – and conflict in the Middle-East, which has the potential to push energy prices and inflation up. The backdrop is complex and highly uncertain, and the margin for error is slim. Careful positioning is key.

If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.ch