Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of September 2025.
GLOBAL
On April 2, President Donald Trump announced reciprocal tariffs on imported goods on a country-by-country basis which were more severe than market participants expected.
On April 9, the administration lowered tariff rates with most trading partners to 10% to allow for trade negotiations to commence, with further reductions announced on May 12. On Aug. 29, the U.S. Court of Appeals for the Federal Circuit ruled that most of the tariffs enacted earlier this year were unlawful. However, with the appeals process and other avenues for enacting tariffs still open, the reshaping of global trade is likely to continue. For further context, in August, tariff-related revenues eclipsed $29.5 billion. Over the past few months, tariff-related uncertainty has eased, with peak uncertainty now behind us.
Following a nine-month pause in the U.S. central bank’s easing campaign, the Federal Open Market Committee lowered domestic interest rates last month. After a period of restrictive monetary policies aimed at curtailing persistent inflation, most global economies have begun lowering interest rates to foster growth and support labor markets. Short-term interest rates from most of the world’s largest central banks remain elevated relative to the past decade, adding pressure to global financial systems. Offsetting these easier global financial conditions is a sharp increase in global trade policy uncertainty.
Geopolitical tensions remain elevated due to recent conflicts in the Middle East, along with the ongoing war in Ukraine. Aside from the human tragedy that is always associated with war, these conflicts have also contributed to increased risks and volatility in financial markets.
Taken together, recent global and economic actions have kept investors on edge. Despite these concerns, global economic growth remains resilient, driven by consumer spending in most developed nations. We expect this to continue in 2025, although likely at a slower rate than historical norms.
CENTRAL BANK
POLICY
The FOMC last met Sept. 17 and lowered interest rates by 25 basis points, the first cut of 2025.
Recent weaker labor market data was highlighted as a risk to the central bank’s second mandate of full employment. In its formal statement, the FOMC noted, “In light of the shift in the balance of risks, the committee decided to lower the target range for the federal funds rate by 1/4 percentage point.” Following the cut, the federal funds rate range dropped to 4.00%-4.25%. For the second meeting in a row, there were dissenting views on the target rate, with one voting member calling for a 50-basis-point cut. The committee is scheduled to meet next on Oct. 29, with federal funds futures implying another 25-basis-point cut could be announced, and potentially another at its final meeting in December.
The European Central Bank last met on Sept. 11 and held their target interest rates steady. In a prepared statement, the ECB noted that future decisions “will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission.” As of the end of September, market participants expect no further interest rate cuts over the next several months from the ECB.
EQUITY
PERFORMANCE
Domestic stocks increased in September, with the S&P 500 returning 3.6% while hitting eight new all-time highs over the month.
The blue-chip Dow Jones Industrial Average increased 2.0%, while the tech-heavy Nasdaq composite advanced 5.7%. International stocks were higher, with the MSCI Emerging Markets Index posting a 7.2% gain and the MSCI EAFE Index of developed international equities advancing 1.9%. The MSCI All Country World Index of developing and developed market stocks gained 3.4% during the month.
Second-quarter earnings season notched another stellar quarter of earnings growth for the S&P 500, the index’s eighth consecutive quarter of earning gains. Third-quarter earnings season has just begun, with 19 companies having reported their latest financial results. Throughout October, 322 companies in the S&P 500 are scheduled to report, with third-quarter growth expectations currently above 6%. Looking ahead, market expectations for full-year 2025 earnings growth are around 8.5%, with 2026 expectations at approximately 12.7%.
INTEREST RATES
& GROWTH
On Sept. 25, second-quarter U.S. GDP was revised higher to 3.8%, outpacing expectations and further reinforcing the resiliency of the U.S. consumer.
Private consumption -- which accounts for about 68% of GDP -- rebounded in the second quarter to 2.5% growth, following below-average growth in the first quarter. The report also noted a strong reversal in net exports, which contributed to some of the economic growth.
At the September FOMC meeting, the Fed released their latest summary of economic projections, which details the central bank’s outlook on a variety of prospective economic measures. Specifically, investors digested higher expected GDP growth for 2025 and 2026 compared to the previous update, though both forecasts still point to growth below the historic average. In addition, the projections included higher inflation expectations for 2026, along with additional interest rate cuts anticipated for 2026.
In August, the U.S. Treasury yield curve moved lower across both short- and long-term maturities, while yields on term points between three and seven years rose slightly. Specifically, the two-year Treasury yield fell one basis point, ending the month at 3.61%, while the 10-year yield declined eight basis points to 4.15%. In addition to higher Treasury yields, credit spreads, or the premium investors require for credit exposures, moved lower in September.
Mortgage rates moved lower in September, with Freddie Mac’s Primary Mortgage Market Survey showing the average 30-year fixed rate falling to 6.3% on Sept. 25 -- down 26 basis points from Aug. 28.
POLITICAL
Earlier this year, Trump announced reciprocal tariffs on imported goods on a country-by-country basis which were more severe than Fifth Third’s Investment Management Group or market participants expected.
These tariffs seek to decrease the trade deficit, promote domestic manufacturing and protect American workers. The net effect of these policy changes resulted in the largest increase in the effective tariff rate on imported goods since the 1930s, which has put downward pressure on business sentiment and upward pressure on inflation expectations from U.S. consumers.
Following trade agreements announced earlier this summer, the U.S. Court of Appeals for the Federal Circuit ruled on Aug. 29 that most of the tariffs enacted under the International Emergency Economic Powers Act were unlawful. The Supreme Court is set to begin deliberations on the legality of these tariffs in November; however, many political analysts note that other legal avenues remain available to maintain tariffs on imported goods. At the same time, investors have taken note of surging government revenue from tariffs, with over $29.5 billion generated in August alone.
With a spending bill failing to pass through Congress, the U.S. government faces a potential shutdown at the end of September. Although government shutdowns can cause initial market volatility, history shows they are often accompanied by minimal changes to equities and bond yields.
INVESTMENT
THEMES
Domestic equities began seeing upward changes to future earnings expectations in June, and that trend continued last month with positive revisions to 2026 earnings-per-share estimates for the S&P 500.
In the coming weeks, a new earnings season kicks into high gear, with expectations for a ninth consecutive quarter of actual earnings growth for large-cap equities.
Headline inflation moved slightly higher, with August’s Consumer Price Index rising 2.9% year over year. Core CPI, which excludes food and energy, was unchanged month over month, with prices up 3.1% compared to a year ago. The second-quarter U.S. GDP report detailed economic growth of 3.8%, supported by a still-resilient U.S. consumer. Finally, the Federal Reserve eased financial conditions with its first interest rate cut of 2025, with further cuts expected by year’s end.
It is our belief that peak trade uncertainty is now behind us; however, geopolitical tensions continue to weigh on investor sentiment. Despite this, most key domestic economic fundamentals -- including moderating inflation and strong corporate earnings -- remain resilient. One exception is the domestic labor market, which has modestly weakened, prompting the central bank to resume interest rate cuts. On balance, the headwinds and tailwinds currently at play suggest there is a potential path for global economic growth, albeit at a slower pace than initially expected.
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