No September Scaries In Sight

October 7, 2025

Both stocks and bonds enjoyed another month of gains in September, extending the rally that has been picking up steam since April. Back in the springtime, the recovery was driven initially by easing tariff concerns and extensions, but has been sustained in more recent time periods by supportive economic data, a robust corporate earnings picture, and the beginning of a new easing cycle for interest rates. These three “legs of the stool” have combined to provide support and momentum for financial markets at somewhat lofty valuations.

The broad indices were all higher in September, with the S&P500 and NASDAQ delivering impressive returns of +3.6% and +5.7% (marking 5 and 6 consecutive positive months, respectively). For the S&P500, it was the best September in 15 years and 2nd best in 27. Even more encouraging, the rally has broadened out to include categories and sectors separate from the normal leadership. Small-caps have narrowed the gap in returns between their large-cap counterparts, as evidenced by the Russell 2000 reaching its first new all-time high since November of 2021. This makes sense, as many of the small-cap sectors in the index have historically shown greater sensitivity to interest rate cuts. This increase in breadth and overall participation offers conviction and confirmation that the current up-trend remains firmly in place. Very positive stuff overall.

The single biggest economic development during the month was the ¼ point interest rate cut delivered by the Federal Open Market Committee. This move was widely expected and thus was essentially “priced in” well in advance. Nonetheless, financial markets celebrated the news and keyed in on the Fed’s language and projections, indicating stronger economic growth than earlier projected. Although there was some disagreement among committee members on the future level of interest rates (the so-called “dot plot” projections), financial markets are betting on at least one additional cut in 2025, perhaps two, and a further cut in early 2026. If this plays out, and the Fed can successfully thread the needle between sticky inflation and a softening labor market, it could provide additional support to equity and bond prices as we move into the last quarter of the year. For now, market participants are celebrating a lower rate while cautiously awaiting the next round of economic data.

Accordingly, fixed income markets also rallied in September, as interest rates of various maturities declined and credit spreads tightened slightly. The Bloomberg Aggregate Bond Index returned 1.09% during the month, bringing its yearly total return to a respectable 6.13% level. In a show of mean reversion after underperforming all year long, the municipal bond market caught up to its taxable counterparts, gaining 2.32% during the month. The solid returns in this space came despite concerns about a government shutdown and its implications for federal funding for state and local municipalities. Although year-to-date returns for “munis” still trail the other broad indices, this could mark the beginning of the municipal market’s attempt to catch up to other fixed income sectors.

As of midnight September 30th, the US government has “shut down” with Congress failing to keep the doors open via either a temporary solution (what is known as a continuing resolution) or a permanent budget. Historically, shutdowns have tended to be brief, typically lasting just a few weeks, with the longest shutdown lasting 35 days. Despite short-term volatility and uncertainty, financial markets have typically been able to easily weather shutdown storms, with equities rising during the last 5 shutdowns dating back to the 1990s. This phenomenon is mostly due to government shutdowns rarely affecting corporate earnings directly, and any effects on economic output being temporary and short-term. Still, this shutdown bears watching as the status of our current economy (ongoing tariff negotiation, persistent inflation, and a softening labor market) could make it more susceptible to any negative implications. We expect this situation to be resolved in the coming days or weeks; the broader markets at this time agree.

Moving into October, we are encouraged by the messages that the markets are sending. Between widespread participation to continued leadership by AI and semiconductor industries, the equity rally appears to have both technical and fundamental support. A prospective late-month rate cut is on the table, which could provide additional air for the sails of both equities and bonds. That being said, we do have the usual slate of economic data to contend with (assuming it is not delayed by the government shutdown) as well as the combination of sticky inflation and soft labor dynamics. Thus far, the market has been able to look through these latter data and instead focus on earnings, economic growth, and interest rates. This is our baseline unless something major changes. We hope you are enjoying Autumn so far. We thank you for your continued interest, trust, and support.

Sincerely,
Jason D. Edinger, CFA
Chief Investment Officer
Boston Wealth Strategies

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.