September 2025 Market Recap

September 2025 proved to be a pivotal month for the economy and markets. The Federal Reserve delivered its first interest rate cut in nearly a year, responding to clear signs of a cooling labor market. Key economic data releases, from hiring and job openings to housing prices and consumer confidence, painted a picture of growth losing some steam, but not collapsing. Even so, equity markets were resilient: U.S. stocks defied the month’s usual weak seasonality to post strong gains, while bond yields stayed range-bound and commodity prices sent mixed signals. Below we break down what happened in September and outline what to watch as we head into October, in plain language designed for long-term investors.

Fed Makes a “Risk-Management” Rate Cut

In mid-September, the Federal Reserve cut the benchmark federal funds rate by 0.25%, setting a new target range of roughly 4.00% to 4.25%. This marked the Fed’s first rate reduction since late 2024, signaling the start of an easing cycle aimed at supporting the economy. Why the change? Fed officials noted that job growth has clearly slowed and that the risks to employment have risen, even as inflation, while still above target, has stabilized. In the Fed’s view, the balance of concerns has shifted: they see downside risks to the job market now outweighing any remaining upside risks to inflation.

Fed Chair Jerome Powell described the move as a “risk management cut,” indicating that the Fed wants to insure against a harder economic downturn by easing a bit now. He emphasized that this wasn’t the start of aggressive stimulus, but rather a prudent adjustment since recent data showed much lower job creation than earlier in the year. Importantly, Powell noted the Fed is not on a pre-set course; further rate moves will depend on how the economy evolves. Still, the Fed’s new projections (the “dot plot”) suggest most officials expect two more quarter-point rate cuts in 2025 (likely one at each of the two remaining meetings) and then a very gradual path toward a neutral rate around 3% over the next couple of years. In other words, if the economy cooperates, rates may slowly trend down but are not envisioned to plunge rapidly. The bottom line for investors is that borrowing costs have likely peaked for this cycle, and the Fed is cautiously shifting toward providing support, albeit in measured steps.

Labor Market Losing Momentum

Much of the Fed’s pivot has to do with a clear softening in the labor market. Several reports in late September underscored this trend. The August JOLTS survey (Job Openings and Labor Turnover) showed job openings roughly steady at 7.23 million, barely changed from July. However, beneath the surface, hiring slowed significantly; the number of hires fell to about 5.13 million, the lowest level since mid-2024. Fewer people are being brought on board, and even the quit rate (a sign of workers’ confidence) has eased, pointing to a less dynamic job market. Layoffs, interestingly, ticked down slightly in August, but overall demand for labor has cooled. Economists partly blame this on lingering uncertainty from new trade tariffs and an immigration crackdown that has reduced labor supply, creating what Fed Chair Powell termed a “curious balance” in the job market. Companies have become more cautious with hiring amid these headwinds and the general late-cycle economic slowing.

Perhaps the most striking statistic: monthly job gains have nearly stalled. Over the June to August period, U.S. nonfarm payrolls grew by an average of only 29,000 jobs per month, a dramatic downshift from the roughly 80,000 pace of a year earlier. In fact, August saw only 22,000 jobs added nationwide, according to initial estimates. Private payroll data from ADP, which came out at the end of September, even suggested an outright drop: private-sector employment fell by 32,000 in September, the largest decline in two and a half years. (This ADP report took on extra significance because, at the start of October, a federal government shutdown delayed the release of the official September jobs report.) Taken together, these indicators show a labor market that has lost the blistering momentum of the post-pandemic years and is now essentially treading water.

Unemployment, meanwhile, has crept up modestly to 4.3% (from lows around the mid-3% range last year), and consumer confidence has been dented by job worries. The Conference Board’s index of consumer confidence fell to a five-month low in September. Americans’ views of current business conditions worsened, and their assessment of job availability dropped for the ninth straight month to the lowest level in years. In other words, people are noticing that jobs aren’t as plentiful as they used to be, which is making them more cautious. This dip in confidence matters because if consumers become more hesitant, their spending (which drives about two-thirds of the economy) could slow in the future. For now, consumer spending has held up relatively well (August data showed a solid uptick), but the softening outlook for jobs is a warning sign.

Inflation Eases, Housing and Prices Show Mild Trends

On the inflation front, there was mixed but generally tame news, exactly what the Fed was hoping for. The Fed’s preferred inflation gauge, the Core PCE price index, is rising at roughly 2.9% year-over-year (as of August), essentially unchanged from the prior month and much lower than last year’s peak. Overall PCE inflation ticked up slightly to about 2.7% (due in part to higher energy prices over the summer), but this level is not far above the Fed’s 2% goal. Crucially, Fed officials have indicated they are looking through one-off inflation bumps from things like tariffs, focusing instead on the underlying trend. So far, that underlying trend shows wage growth moderating and price increases in the vast service sector gradually slowing, both of which support the case that inflation is no longer running away.

The housing market, a key driver of both economic activity and inflation, also showed signs of cooling. Home prices are still up, but the pace has slowed markedly. The closely watched S&P/Case-Shiller Home Price Index rose just 1.8% year-over-year in the latest data (July), down from a 2.2% annual gain the month before. In fact, that 1.8% rise is the smallest home price increase in about two years, indicating that the pandemic-era housing boom has fully transitioned into a slower growth phase. Higher mortgage rates earlier in the year curbed buyer demand, and the effects are evident: home price appreciation is now barely keeping pace with overall inflation. From an inflation standpoint, this is good news; slower housing price growth should eventually flow through to cooler housing inflation in official CPI/PCE statistics, since shelter costs are a major component of those indices. Indeed, the Fed noted that slowing home price gains will help offset other price pressures. For prospective homebuyers or long-term investors, a gently rising housing market is more sustainable, though it also means less of a wealth-effect boost than in recent years.

Meanwhile, other price indicators were benign. For example, consumer goods prices have been under control; anecdotal reports even show some price relief in categories affected by tariffs, as businesses find ways to absorb costs. With inflation appearing nonthreatening and contained despite still-elevated readings in some areas, the Fed feels it has breathing room to support employment. The central bank’s updated forecasts still see inflation gradually returning to about 2% over the next couple of years. This environment, where inflation is back to a moderate pace and the job market is the main concern, is a classic late-cycle scenario. It’s one in which interest rate cuts are meant to extend the economic expansion softly, not to fight a crisis.

Markets Rally Even as Economy Slows

Financial markets took September’s cross-currents in stride and even thrived. The stock market, in particular, had an outstanding month. The S&P 500 index jumped over 3.5% in September, making it the strongest September for stocks in 15 years. This is notable because historically September is often a weak month for equities, but not this time. In fact, the S&P 500 has now risen for five consecutive months, and it closed September near all-time highs. The Dow Jones Industrial Average hit a record high during the month as well, and the tech-heavy Nasdaq Composite also logged solid gains (its sixth monthly advance in a row). Investors were encouraged by the Fed’s tilt toward lower rates and the hope that lower borrowing costs in the future will support corporate profits. They also drew confidence from the fact that, despite softer hiring, consumer spending and corporate earnings have been relatively resilient so far. The result was a broad-based rally: everything from large-cap tech stocks to more cyclically sensitive sectors participated in the uptrend.

It’s important to note that stock investors appear to be looking past the current soft patch in economic data, betting that Fed easing and any fiscal stimulus (or at least the absence of new drags) will keep a recession at bay. To be sure, there are risks, and those showed up in pockets of volatility, but the overall sentiment remained “risk-on.” Even the looming federal government shutdown at the end of September did not derail the market’s momentum (though it did introduce some tentativeness). By month-end, Congress had failed to reach a budget deal, causing a partial shutdown starting October 1. Historically, short government shutdowns have had limited market impact, and investors seemed to assume this one would be resolved without long-term damage. Still, it’s a situation to monitor (more on that below).

In the bond market, interest rates were relatively steady in September. The 10-year U.S. Treasury yield hovered in a range roughly between 4.0% and 4.3%, finishing the month around 4.15%. This level is only slightly higher than where it started the month, meaning bond prices were little changed overall. Initially, when the Fed cut rates, one might have expected longer-term yields to fall; however, any downward pressure on yields from the Fed’s dovish move was offset by other factors, such as the still-strong Q2 economic growth and some large Treasury debt issuance. In effect, the bond market is pricing in the idea that the Fed will ease only gradually and that inflation will remain roughly under control. Indeed, as long as the labor market deterioration is orderly and the Fed cuts are modest, there’s an anchoring effect on long-term yields. For stock investors, yields in this zone are not problematic; as long as the 10-year stays around these mid-4% levels, it isn’t high enough to severely compete with equities for attractiveness, nor low enough to flash recession warnings. As one market commentary put it,  as long as the 10-year yield remains under about 4.2% (and doesn’t spike toward 4.5% or plunge below 4.0%), it won’t interfere with a continued rally in stocks. That held true in September.

Currency and commodity markets had notable moves as well. The U.S. dollar was choppy but ultimately little changed over the month. The Dollar Index spent September chopping sideways in the high-90s. A stable dollar tends to be benign for global financial conditions, and indeed its trading range caused few ripples; it was fine for stocks (not a headwind) as analysts noted. The dollar eased slightly at times when U.S. economic data disappointed (since softer data fuels expectations of Fed cuts, which can weaken the dollar). For instance, the modest downside surprises in consumer confidence and home price growth nudged the dollar down in late September. But these effects were limited, and by month’s end the dollar had firmed up again, reflecting the fact that other economies also have their growth challenges. The dollar’s steady posture removed one source of uncertainty for investors.

Gold prices told a story of their own. Gold surged to record highs in September, briefly touching about $3,900 per ounce, an all-time high by a wide margin. The yellow metal’s rise reflects a combination of factors: investors seeking a safe haven given economic and political uncertainties, some looking for an inflation hedge (even though inflation is lower now, gold tends to thrive when real interest rates fall, as happens when the Fed cuts rates), and possibly technical momentum as well. Gold’s strength is a reminder that not all investors interpret the environment as risk-on; some prefer assets that could hold value if growth disappoints or if financial volatility picks up. In contrast, oil prices weakened considerably. U.S. crude oil (West Texas Intermediate) fell to around $62.50 per barrel by the end of September. That was a notable drop (oil was down roughly 5% for the month, and had fallen nearly 1.5% just on the last trading day). The decline in oil came as inventories remained ample and as traders worried that a slower economy would mean less demand for fuel. There may also have been an element of relief selling; earlier in the summer, oil prices had spiked on supply cuts, but as those fears abated, prices normalized lower. For consumers, cheaper oil is a bit of good news: it points to lower gasoline prices and less pressure on headline inflation going into the fall. For markets, the combination of record gold and cheaper oil is unusual, but it largely reflects the specific drivers in each market rather than a single narrative: gold up on financial hedging, oil down on economic basics.

Outlook: Navigating the Final Quarter of 2025

As we move into October, what should investors watch? Top of the list: the labor market. With the official September jobs report delayed by the government shutdown, its eventual release will be highly anticipated. Economists are generally expecting a modest rebound in hiring (perhaps on the order of 50,000 jobs added in September) after the extremely weak August. Any major surprise in that report, whether a further downside miss or an unexpectedly strong number, could sway the Fed’s thinking on whether to cut rates again at the next meeting (scheduled for early November). If the job market weakens far more than anticipated in coming weeks, the Fed might even accelerate its rate cuts or consider larger cuts. Conversely, if hiring shows signs of picking back up or wage growth re-accelerates, the Fed could decide to pause and assess. At the moment, many analysts believe that the labor market would need to weaken considerably more in order for the Fed to deliver all the rate cuts that markets have already priced in. That implies a bit of caution: investors betting on a rapid drop in interest rates might be disappointed unless the economy takes a sharper downturn. The Fed itself will likely proceed carefully; they have characterized their policy stance as still somewhat restrictive but moving toward neutral. They want to ease only as much as necessary to sustain employment gains without letting inflation flare up again.

Inflation data will be the other crucial factor to monitor. The next readings for consumer prices (CPI) and the Fed’s core PCE index for September will come out in October (assuming the data schedule normalizes after a short shutdown). If those reports show inflation remaining in the mid-2% range year-over-year, it will reinforce the case for gradual Fed easing. Any unexpected spike, for example due to oil earlier in the quarter or other factors, could give the Fed pause. For now, expectations are that inflation will stay relatively steady or even tick down, given the lack of broad price pressures (as we saw with housing and the impact of tariffs being modest).

The resolution of the U.S. government shutdown is another near-term wildcard. A brief shutdown (a few days or a week) would likely have minimal economic effect, but a longer stalemate in Washington could start weighing on federal employee pay, government services, and overall confidence. Financial markets could grow nervous if, say, a few weeks pass with no funding deal, and importantly, a prolonged shutdown would freeze the flow of government economic data. In fact, as of October 1, agencies announced that key reports (like employment and GDP updates) would be postponed during the funding lapse. This data blackout can leave the Fed and investors flying a bit blind. The hope is that lawmakers will resolve the impasse early in October, allowing data releases to resume. Long-term investors should remember that political dramas, while unsettling, tend to be temporary; eventually the government will reopen and any missed pay will be disbursed. However, the noise can cause short-term market swings. The prudent approach is to avoid overreacting to headlines and ensure one’s portfolio is resilient to bouts of volatility.

From a strategy standpoint for long-term investors, the overarching advice is to stay diversified and focus on fundamental goals. We have now entered a phase where interest rates are likely trending down, not up, and where economic growth is slower. Historically, such an environment, late cycle but not recessionary, with the Fed easing, can still be rewarding for a balanced portfolio, but it requires selectivity and patience. Equities can perform well if earnings continue to grow even modestly, and lower interest rates tend to support stock valuations (all else equal). At the same time, high-quality bonds become more attractive now that yields are relatively elevated and the Fed is no longer squeezing liquidity; bonds can provide income and potential price appreciation if yields fall over time. We saw in September that a 60/40 style portfolio (60% stocks/40% bonds) likely did well, as stocks rose and bonds held their value, a reversal from the inflation scare period when both fell. 

Bottom Line

September was a month of significant shifts. The Fed turned toward easing mode in response to a clearly cooling job market, and investors largely cheered the policy pivot, pushing stocks higher. Inflation is no longer the chief worry; instead, it’s the pace of growth and jobs that everyone is watching. As October unfolds, we’ll get more clarity on the data and the Fed’s response. Until then, maintaining a long-term focus and a diversified approach is the best way to navigate the ongoing transition in the economic cycle.