MONTH IN REVIEW

September was another positive month for key indices as NDX led the way.

Equities continued to rally in September for a fifth straight month.  Some of the key drivers for the continued rise in asset prices included increasing odds of multiple interest rate cuts, moderating inflation, and future earnings growth expectations on the rise.  Tech led the way as the AI-theme was alive and well.  Following a return of 2.03% in August (total return), SPX (the S&P 500) returned 3.64% (total return) in September.  After returning 0.92% (total return) in August, NDX (the Nasdaq-100) returned 5.47% (total return) in September.  The Russell 2000 returned 3.11% in September after a gain of 7.14% in August.  SPX & NDX held their key moving averages in September, which we will illustrate later in this note. 

High Yield, Real Estate and Bitcoin all rallied in September with the risk-on backdrop.  Following a return of 1.25% in August (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.82% (total return) in September.  Following a return of 2.91% in August (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned 0.10% (total return) in September.  Bitcoin returned 5.54% in September (Bloomberg Bitcoin Index) after returning -7.23% gain in August.  Through September, Bitcoin has gained roughly 22% YTD.

Treasuries rallied in September as core inflation remained low enough and weak labor market data helped the Fed’s decision to cut rates by 25bps, the first cut in 9 months, and signaled to the market that they are commencing a new rate cutting cycle.  The FOMC lowered its policy rate to a range of 4.0% – 4.25% during its September meeting.   The long-end of the curve outperformed during the month.  The 10-yr closed at 4.15% to end September, slightly lower than at the end of August, and under the lower end of its important 4.20% – 4.50% technical range.  The 30-year Treasury yield ended September at roughly 4.73%, down from 4.89% at the end of August.  Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so.  Additionally, the 2/10 Treasury yield spread narrowed slightly in September.  The 2/10’s record-long inversion came to an end in the second half of 2024.

Another notable datapoint from September was the release of August’s inflation data: Core CPI printed 0.3% M/M, matching the consensus.  PPI printed -0.1% M/M, well below the 0.3% consensus.  PCE printed 0.3%, matching the consensus.  Core PCE printed 0.2%, also matching the consensus. 

The next Fed meeting will take place on 10/28-10/29, and there is a 25bps cut expected.  Looking forward, and as of the end of September, the market is pricing in a total of 50bps of cuts for the remainder of 2025 (two cuts), and 75bps in 2026 (three cuts).  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has signaled that it is ready to start cutting rates despite inflation remaining stuck above the 2% target.  Furthermore, the weaking employment picture will play a major role in future cuts.

According to FactSet, the trailing 12-month P/E ratio for SPX is 28.8 which is above the 5-year average (25.0), and above the 10-year average (22.7).  The forward 12-month P/E ratio for SPX is 22.8, which is above the 5-year average (19.9), and above the 10-year average (18.6).  Additionally, per FactSet, SPX is expected to report Y/Y revenue growth of 6.3% for Q3 2025, which is above the estimate of 4.8% on June 30.  Finally, per FactSet, SPX is reporting Y/Y earnings growth of 8.0% for Q3 2025, which is above the estimate of 7.3% on June 30.

Within commodities and currencies: WTI Crude Oil fell in September by roughly 1.5% to close near $63/bl.  Gold rose by 11.90% in September to close near $3,825/oz as its historic run in 2025 continued.  Finally, the USD/DXY was flat M/M and closed out September near 97.75.  2025 has been one the weakest starts to a year for the USD in several decades.

VOLATILITY UPDATE

After closing out August near 15.50, the VIX Index finished September near 16.25 as volatility slightly rose but remained subdued.  The VIX has mostly remained sub-20 since Q2.  The 12-month high of the VIX Index was registered on 4/7/25 at 60.13.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  And in 2024, the VIX averaged near 15.50.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities.  It is thought of as “The VIX Index of the Bond Market.“   After closing out August near 80, the MOVE Index closed out September near 78.  The MOVE continues to print very low numbers.  The 12-month high of the MOVE Index was registered on 4/8/25 at 139.88.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the case over the past 5 months.

NOTABLE CHARTS

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching US trade policy developments, inflation, earnings, yields, and fiscal policy.  On the inflation front, pending a Government shutdown, September’s CPI will be released on 10/15, and PPI will be released on 10/16.  Finally, the next FOMC meeting will take place on 10/29-10/30, and the market is expecting a 25bps cut.