Sept. Recap: AI-related and Rate-cut drove the monthly boom, breaking seasonal weakness
September just broke with the usual seasonal weakness and delivered an exceptionally strong monthly performance. The S&P 500 rose approximately 3.5% in September (the S&P 500 has fallen an average of 4.2% in September over the past five years), marking its fifth consecutive monthly gain and driving the third quarter's overall gain to 7.8%.
AI and technology drove the Nasdaq's 5.6% surge in September, its sixth consecutive month of gains.
A key sign of increased risk appetite was the small-cap Russell 2000 index reaching a new all-time high, its highest level since late 2021, indicating both strong momentum and increased market breadth.
U.S. Stock Market Index Returns (September 2025)
Index | September Return | Q3 | YTD |
Dow Jones Industrial Average | 1.90% | 5.20% | 9.00% |
S&P 500 | 3.50% | 7.80% | 13.80% |
Nasdaq Composite | 5.60% | 11.20% | 17.40% |
Russell 2000 (Small-Cap) | 3.00% | 12.00% | 9.30% |
Source： Tiger Trade App, until September 30
September's primary market catalyst was the Federal Reserve's 25 basis point interest rate cut at its September meeting. Meanwhile, AI-driven tech growth stocks surged. The technology sector was the best-performing sector in September, closing up 7.4% for the month.
S&P 500 Sector Returns (September 2025)
Rank | Sector | Monthly Performance | Primary Drivers and Reasons |
1 | Information Technology (XLK) | 7.40% |
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2 | Communication Services (XLC) | 6.30% |
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3 | Utilities (XLU) | 3.40% |
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4 | Consumer Discretionary (XLY) | 3.40% |
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5 | Health Care (XLV) | 2.30% |
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6 | Industrial (XLI) | 1.50% |
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7 | Financials (XLF) | -0.20% |
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8 | Real Estate (XLRE) | -0.40% |
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9 | Energy(XLE) | -1.20% |
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10 | Materials (XLB) | -2.90% |
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11 | Consumer Staple (XLP) | -3% |
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Summary：
Federal Reserve rate cut: The Federal Reserve lowered its policy rate by 25 basis points in September (to a range of 4.00%-4.25%) and hinted at further rate cuts before the end of the year, becoming the biggest macro catalyst for September. Lower borrowing costs have helped reduce the discount rate on future earnings and made valuations for high-growth tech stocks more attractive.
Optimism about AI Growth: The ongoing AI "mega-theme" continues to provide fundamental support, driving record earnings and revenue for large companies in the information technology and communications services sectors.
Economic Resilience: Despite mixed data (August CPI +2.9%) and renewed inflation concerns, analysts expect strong third-quarter US corporate earnings growth, allowing investors to look past the data.
As the final quarter, rising stock valuations and the typical October volatility are prompting strategists to remain cautious. Continued AI trading and the path of future Fed rate cuts will remain key variables in determining market performance in the fourth quarter.
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