September has a reputation as one of the toughest months for markets, yet 2025 has defied the script. The S&P 500 climbed 3.5% month-to-date through September 23, marking its best start to September since 2013. This advance comes against the backdrop of the Federal Reserve’s first rate cut since December 2024, a move that has rippled through equities, bonds, and currencies. In this update, we examine the Fed’s decision, the disconnect between index gains and market breadth, the growing concentration of returns in mega-cap technology, and how investors might position for resilience in this environment.
The Federal Reserve: A Modest First Step
The Federal Reserve lowered the federal funds target range by 25 basis points, bringing it to 4.00%–4.25%. This decision followed slowing job growth, signs of a cooling labor market, and inflation that remains above the Fed’s long-term target despite moderating from its recent peaks. Importantly, the Fed’s updated projections—its so-called “dot plot”—signal two additional cuts may come before year-end.
For households, the immediate effect is modest: borrowing costs for mortgages, home equity lines, and credit cards are easing slightly, while yields on money market funds and CDs are adjusting lower, though remain historically attractive. For portfolios, the picture is more complex. Equity market outcomes following Fed cuts have historically hinged on whether the economy avoids recession. In expansions, technology stocks have delivered average gains of 35% in the 12 months after a cut; in recessions, the same sector has historically declined 19%. This underscores the need for diversification and measured positioning.
Market Performance: Strong Returns, Narrow Leadership
Equity markets have responded positively in September, but leadership has been narrow. Of the ten sessions so far when the S&P 500 closed higher this month, breadth was negative seven times, meaning more stocks fell than rose even as the index gained. By contrast, many of September’s down days saw positive breadth, with more stocks rising even as the index closed lower. This disconnect highlights the growing influence of a small group of mega-cap stocks on overall market returns.
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