Quarterly Review: Stocks Hit Fresh Highs, and the Fed Makes a Cut

1. The broad market S&P 500 and tech-heavy Nasdaq both hit record highs in September.
2. The Fed lowered interest rates, by a quarter point, for the first time since December 2024.
3. Small cap stocks outpaced large caps in the US and globally, but value lagged growth.

Stocks extended gains in the third quarter, with major indices in the US hitting new records, including the S&P 500 and Nasdaq, as trade negotiations proceeded and the US Federal Reserve cut interest rates.¹ The rate reduction in September was the first in nearly a year. Stocks’ rise was a continuation of the gains that have proceeded for much of 2025, aside from the market’s sharp fall and quick recovery during a volatile April. Developed international equities lagged the US in the third quarter, but emerging markets were higher, and both remained ahead of the US for the year. In the bond market, US Treasuries were slightly higher, with the benchmark 10-year yield just above 4%.²

The Fed cut the federal-funds rate by 25 basis points to a range between 4%–4.25% in September, the first move lower since December.³ In August, the US core consumer price index, which excludes more-volatile food and energy items, was shown rising 3.1% from a year ago.⁴ That’s above the Fed’s target rate of 2%. The Fed’s September rate cut came with officials referencing their two goals of keeping inflation and unemployment in check but noting that “downside risks to employment have risen.”

Trade negotiations between the United States and other countries continued during the quarter, with the US administration reaching a number of trade deals, including with the European Union, the United Kingdom, and Japan. But questions remained about levies that may be imposed on goods from China, India, Mexico, and elsewhere.⁵ In the coming months, the US Supreme Court is also set to weigh in on a case to determine the validity of global tariffs that have been imposed by the current administration.⁶

Against this backdrop, US stocks advanced, with the S&P 500 Index rising 7.7% and the tech-heavy Nasdaq adding 11.3% as of September 19. Shares of NVIDIA stood out as the firm became the first public company to reach a market capitalization of $4 trillion, making it nearly 8% of the S&P 500 Index.⁷ Global equities, as measured by the MSCI All Country World Index, rose 7.2% as of September 19, trailing the US. Developed international stocks outside the US added 4.8%, as measured by the MSCI World ex USA Index. The MSCI Emerging Markets Index gained 10.2%.⁸

Small cap stocks beat large caps in the US and globally through September 19, with US small caps having some of their best returns in recent years.⁹ Value stocks, or those with low relative prices, did not rise as much as growth stocks in the US and globally. High profitability stocks were outpaced by low profitability stocks in global developed markets as of September 19, while the opposite was true in emerging markets, with high profitability stocks beating their low profitability counterparts.¹⁰

In the bond market, US Treasuries were 1.5% higher, sending the yield on the benchmark 10-year Treasury down to 4.14%.¹¹ The broader bond market also gained, with the Bloomberg US Aggregate Bond Index up 2.1% and the Bloomberg Global Aggregate Bond Index (hedged to USD)—a broad benchmark of sovereign and corporate debt—adding 1.2% as of September 19.¹²

Risky Business

Examining how meme stocks have fared since the phenomenon began nearly five years ago can provide a reminder to investors to take caution. By holding a diversified portfolio, investors can often get exposure to meme stocks while being more likely to capture broad market returns and limit individual stock risk.

Focus and Fortitude