Living in the Northeast, I can’t tell you how many times I’ve been shocked by the warm temps. 80 degrees in September and October?! Don’t get me wrong, I’m not complaining, but it’s not supposed to be this hot this time of year!
That sentiment is echoed when I look at how hot the financial markets are acting. We are at new highs despite the unrelenting flood of crazy news. September is normally a weak month, and we’ve just had the best September market performance in 15 years!
Let’s dive in and talk about what is keeping this market flaming hot, and the big concern that is haunting some of the markets’ seasoned veterans.
Index Performance
- S&P 500 up 3.65% for the month, 15.30% year to date.
- Nasdaq Composite up 5.68% for the month, 18.89% year to date.
- MSCI ACWI ex USA up 3.66% for the month, 19.59% year to date.
- Source: YCharts as of September 30, 2025
The Fed: A Fresh Cut
In September, the Federal Reserve’s Federal Open Market Committee (FOMC) cut the target federal funds rate by 0.25% in, bringing the range to 4.00%–4.25%. Chairman Jerome Powell continues to remain data dependent, and that data is starting to point increasingly to justifying a rate cut. Inflation remains generally below 3%, which is higher than the 2% target of the committee, but is not showing any meaningful signs of overheating. On the other hand, some very troubling jobs data revisions were released toward the end of the summer, and the risk increased that the Fed was falling behind shifts in the economy.
Most FOMC officials now anticipate two additional quarter-point rate cuts before the end of 2025, as reflected in the “dot plot” projections and the CME FedWatch tool. What this ultimately means is we are in a Fed cutting cycle which should reduce the cost of borrowing, thereby stimulating more borrowing and more spending. This is ultimately bullish for the market and economy as long as inflation stays in check.
Government Shutdown
As of October 1, 2025, the U.S. federal government officially entered a shutdown after Congress failed to pass a funding bill by the deadline. (NBC NEWS) Roughly 750,0000+ federal employees have been furloughed or are working unpaid, while essential services remain partly operational under emergency designations. (PBS)
In the past, the market generally has shrugged off government shutdowns. They tend to be short and politically driven, so the market tends to look past them. However, Congress is as dysfunctional, and the White House is as flagrant, as ever. As a result, this shutdown has the ingredients to be extended. The longest government shutdown historically was 35 days in December 2018, during Trump’s first term.
Probably the biggest concern is that much of the economic data the Federal Reserve depends on for interest rate decisions comes from agencies that are now shut down. How will the Fed handle being data-dependent without data? I think they are still on track to make cuts, despite driving a little blind.
Tariffs: The Oct. 14 Inflection Point
Markets are watching October 14 for two reasons. First, a federal appeals court struck down most of the administration’s “emergency” tariffs as unlawful but paused its ruling until October 14 to give the government time to seek Supreme Court review. Think of it as a yellow light: tariffs stay on for now, but the legal basis is in the Court’s crosshairs. (Holland & Knight)
Second, new sector-specific tariffs on wood products are slated to kick on October 14, 10% on lumber and 25% on cabinets, vanities, and upholstered furniture, with the potential to step up in 2026. That mix tightens financial conditions at the margin by raising input costs for housing‐linked categories and durable goods. (Reuters)
While we might be on the edge of our seats to see what the Supreme Court decides, Trump and his administration have made it clear, tariffs are part of their economic strategy. So, whether the Supreme Court sides with the lower courts that the tariffs are illegal, upholds the emergency tariffs, or forges a kind of hybrid “some can stay because they meet the emergency provisions and some have to go because they don’t”, the administration will likely continue its push for more tariffs. The Executive Branch can always go through Congress to enact tariffs, then companies and countries will have more clarity and may take them more seriously. Either way, the market will likely react positively to any news because it just wants this tariff insanity over!
Does the AI Boom Bear Any Resemblance to the Tech Bubble?
In our view, this is really the big question that should be on investors’ minds when they think about what could go bump in the night. Valuations are high and we hear some concerns from market veterans that things look overextended.
During the 1990’s internet bubble, there was huge capital investment in fiber optic cable, switches, communication towers, etc. which led to capacity gluts. Once investors recognized that we had built too much, orders dried up and prices on inventory fell hard.
Today’s Artificial Intelligence infrastructure build also includes huge investments in advanced chips and systems, data centers, cooling systems, the electric grid, and more. Current forecasts point to a huge growth in the need for computers and it is estimated by the International Energy Agency that we will need to double the power in the U.S. grid to meet the data-center electricity demand. International Energy Agency
One problem during the 1990’s tech bubble was a lack of revenue and earnings from a number of the high-flying companies. That seems to be less of an issue today, but many of the companies have yet to prove they have a profitable business model. While they promise future productivity gains and ultimately profits to the adopters, it is still too early to find real life data to support the enthusiasm. A large portion of the price gains we see in some of the major AI players is based on future growth expectations.
As many companies rush to be the dominant AI player, and investors chase the leaders or the next big thing, there is certainly risk to the market overheating. However, it seems purpose/usefulness of the technology along with power grid constraints are the biggest challenge. The adoption cycle appears to be shorter (ChatGPT gained 100 million users in just two months) for the technology, and with mobile dissemination, it is also more convenient to use, and it integrates into our lives faster than the internet did. If you were there and can remember, access to the internet in the 1990’s was cumbersome, required you to be seated at a wired computer, and was SLOW!
There is no question the internet was in fact transformative, and AI is likely to be as well, but it took Nasdaq 15 years to recover from the “irrational exuberance” of the Tech Bubble. What we are trying to say is even if AI achieves all the wonders that investors hope for, it is still possible to overpay for companies and sit with big losses for many years before you recover from a bad purchase. Having a conscious plan around what price to pay and what the strategy would be if things were to shift is important. You don’t want to get stuck waiting around for years for your investments to recover (what we call getting bailed out by time for paying a bad price).
Conclusion
The Fed, government shutdowns, the economy, and tariffs are all tugging and pulling at markets on a daily basis, but if we zoom out, the real driver of this market is AI. Will it be a great success that takes us to the next level of prosperity and productivity? It certainly seems like it is possible, but it might take some time to get there.
While there are similarities to the Tech Bubble in huge capital expenditures and high expectations for future growth, there are also some striking differences. Adoption is likely to be quicker, and the applications will be easier to use and more user-friendly. But challenges continue, especially the need for more power from the electric grid to support the use of the technology. We remain optimistic but urge investors to remember that Rome wasn’t built in a day.
Chief Investment Officer
Green Ridge Wealth Planning