Global equity markets declined in September as rising interest rates, persistent inflation, and geopolitical uncertainty weighed on sentiment.
U.S. equities demonstrated relative resilience, supported by enthusiasm for artificial intelligence and strong semiconductor performance. Growth stocks outperformed value, while smaller companies struggled. Developed international markets lagged, particularly in Europe, where higher energy costs, rising yields, and currency weakness pressured returns. Emerging markets also declined, although Asian technology markets benefited from sustained AI demand.
Fixed income markets experienced significant losses as the Federal Reserve tightened monetary policy amid persistent inflation and resilient economic growth. Treasury yields rose sharply, particularly at longer maturities, while widening credit spreads contributed to weakness across corporate bonds. Securitized assets also declined, with short-term Treasury bills providing relative stability.
Real assets struggled, as elevated borrowing costs pressured real estate, infrastructure, and natural resource equities. Energy commodities were an exception, benefiting from geopolitical tensions, supply disruptions, and transportation constraints. However, energy equities declined, while precious metals weakened amid rising bond yields.
Looking ahead, resilient economic growth provides some market support, although restrictive monetary policy, inflation, and geopolitical risks remain concerns. Meanwhile, enthusiasm surrounding artificial intelligence persists, but questions about sustainable profitability and productivity improvements remain important.
Equities
Global equities (−1.1%) came under pressure in September amidst rising bond yields and renewed concerns over inflation. Broad weakness was partially offset by continued momentum for AI. .
U.S. equities fell only 0.8% during the month, despite all but two GICS sectors declining. Technology (+4.3%), which accounted for 37% of the Russell 3000 Index, helped keep losses in check despite broader weakness. In a reversal of intra-sector performance during July and August, semiconductors rebounded sharply on gains from Nvidia (+3.6%), Micron Technology (+11.1%), Advanced Micro Devices (+30.0%), and Intel (+34.3%). Software names retreated, led by Oracle (−7.9%) and Salesforce (−10.7%). Favorable results within communication services (+3.9%), the only other sector up during the month, were wholly attributable to Meta Platforms (+26.8%). Financials (−7.2%) had a challenging month in a rising interest rate environment while materials (−7.7%), real estate (−6.3%), consumer discretionary (−6.0%), and utilities (−5.8%) each posted mid to high single-digit declines. With technology biased toward growth stocks, the Russell 3000 Growth Index (+1.8%) was well ahead of the Russell 1000 Value Index (−3.2%) for the month. Also noteworthy was the disparity between the Russell 1000 Index (−0.6%) and the Russell 2000 Index (−5.3%).
Developed non-U.S. equities (−3.1%) lagged both the U.S. and emerging markets, hurt by a significantly lower weight to technology (+3.8%) and the AI trade.
Energy (+2.2%) was the only other bright spot in the region as oil prices advanced on renewed hostilities in the Middle East. Strength in the U.S. dollar (+2.0%) served as an additional headwind for non-U.S. equities during the month of September, most notably in Europe. A 2.3% loss in local terms, driven by rising energy costs and yields in major economies like France (−6.3%) and Germany (−6.1%), was exacerbated by the 2.2% decline in the euro. Japan was the exception, as the yen rose 1.6% and the market was boosted by the country’s mega-cap tech names.
Emerging markets equities (−0.6%) modestly retreated, with a similar bifurcation between technology (+3.8%) and other sectors. Enthusiasm around AI spending and semiconductor demand provided continued support to Korea (+2.5%) and Taiwan (+4.0%), led by benchmark heavyweights SK Hynix (+7.3%), Samsung (+5.8%), and Taiwan Semiconductor (+3.0%). Elsewhere, weakness was broad-based, as the macro backdrop became less supportive amid higher U.S. interest rates and Treasury yields. China (−6.1%) was among the weakest major markets, as soft consumption and continued property market stress weighed on sentiment. President Xi’s closely watched meeting with President Trump did little to change the narrative, with the two countries extending an existing trade truce but making limited progress on broader economic issues. Emerging markets materials (−8.7%) also declined sharply as higher U.S. yields weighed on precious metals, particularly within South Africa (−7.7%).
Fixed Income
On September 16, by unanimous decision, the FOMC raised the federal funds rate by 25 bps to a range of 3.75-4.00%. The committee noted that the action “…will support a timelier return to the Committee’s 2% goal.” In addition, the FOMC stated that “the Committee will deliver price stability.”
Additionally, the Summary of Economic Projections was released, and with growth projections revised upward and the unemployment rate revised downward, the path to 2% is expected to take longer. The FOMC’s projected path of rates calls for one more hike this year followed by a pause. Markets are skeptical and are pricing in up to three rate hikes in 2027.
During the month of September, treasury yields spiked to levels not experienced since the Great Financial Crisis. The shape of the curve held steady between 2-year and 10-year Treasuries but underwent a bearish flattening between 5-year and 30-year Treasuries. In aggregate, Treasuries declined 2.2% during September, with a steep 5.0% decline in long-term Treasuries and a 2.9% fall in intermediate-term Treasuries.
The only segment of Treasuries that posted gains during September was T-bills maturing in 3 months or less, which eked out a 0.3% return.
In addition to rising yields, credit markets also saw wider spreads, with high yield widening 50 bps and investment-grade increasing by 2 bps. High yield declined 2.5%, but the additional carry the sector offers allowed it to modestly outperform the −2.7% return of investment-grade corporates. Within securitized credit, Agency MBS spreads widened by 14 bps while CMBS increased by 1 bps and ABS experienced modest tightening. Nonetheless, securitized assets also delivered negative returns, with a 3.4% fall in Agency MBS, a 1.7% decline in CMBS, and a 0.7% decline in ABS.
Real Assets
Real assets generally underperformed broader markets in September, as rate-sensitive categories faced strong headwinds while energy commodities (+10.1%) continued to outperform (+86.3% YTD) amidst rising international conflict.
Global REITs fell 5.6% as central banks raised rates. European REITs (−9.1%), which are often used as bond-proxies, were particularly affected by the global bond sell-off. U.S. REITs were down 5.3%, with notable declines across office (−8.2%), residential (−7.2%), and retail (−6.9%). Lodging REITs rose by 0.7% in September as the sector continued to reflect resilient consumer spending – lodging led all REIT sectors on a YTD basis with a return of 37.6%. U.S. REITs have outperformed their global peers on a YTD basis (+10.3 vs. +3.0%). Infrastructure (−5.4%) was also heavily affected by rising rates and the resultant impact on project financing; utilities and industrials fell 5.9% and 4.4%, respectively, and MLPs fell 8.3%.
Supply constraints drove Brent prices 8.3% higher during September, with ULS Diesel up 10.3%, helping to drive outsized performance for energy commodities. Several Middle East refineries have struggled to repair damaged infrastructure and global shipping has become increasingly costly and dangerous, with sporadic strikes targeting vessels in the Strait of Hormuz and the Red Sea and Russia intensifying its campaign in the Black Sea.
Increased commodity prices were not enough to deliver gains for energy equities (−2.1%), which were also negatively impacted by rising financing costs. Natural resource equities fared worse (−5.9%), as metals and mining stocks (−9.3%) saw a significant pullback.
The Bloomberg Commodity Index added 0.6% on energy commodity strength, as weakness in precious metal futures detracted from results (−6.8%). Gold was down 6.2%, as the opportunity cost of holding a non-yielding asset increased with rising bond yields.⬛
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