Markets in September were characterised by a cautious but steady advance, with equities extending their summer recovery and reaching new highs. Investors balanced encouraging signs of economic resilience against the persistent headwinds of fiscal uncertainty and geopolitical tension. Late in the month, a US government shutdown increased uncertainty in the short term.
While global equities moved higher, participation across sectors and regions remained uneven. In the US, technology and energy continued to provide leadership, while cyclical sectors lagged amid ongoing concerns around trade exposure and consumer demand. European equities benefited from continued momentum in defence and energy investment, further embedding the region’s strategic reorientation. Emerging markets were strong and remain overlooked given trade concerns and many years of lacklustre returns.
Economic data painted a mixed picture. Labour markets remain tight overall, but the slowdown in job creation is becoming more evident. Consumer sentiment has shown modest improvement, though retail spending data suggests households remain cautious. Inflation pressures continued to ease in goods, but services inflation remains persistent. Wage growth remains elevated and risks embedding second-round effects. This has given central bankers pause for thought when easing monetary policy, disappointing investors.
Fiscal dynamics continued to dominate investor focus. The “Big Beautiful Bill” remains a central concern, with markets increasingly sceptical of the sustainability of US public finances. Long-dated Treasury yields rose further in September as debt issuance accelerated, and demand for higher risk premiums grew. The US dollar remained under pressure, reflecting waning international appetite for US assets, even as political voices grew louder in pressing the Fed to consider rate cuts. Nevertheless, the fiscal loosening will likely provide a short term boost to markets and the economy.
Equity valuations now trade at stretched levels in aggregate, although this is focussed on the mega cap US tech stocks. As we enter the final quarter of 2025, investors must weigh tentative signs of resilience against a backdrop that still tilts heavily toward caution.
