Lessons learnt – Damien’s Market Update – September 2025

In this episode of Damien's Market Update, I discuss the importance of understanding recent market volatility and the potential for investment opportunities beyond major players like Nvidia.

My last market update was recorded in the second half of August. If you recall, unexpected weakness in US jobs data at the start of August sparked fears of a US economic slowdown which sent global stocks markets crashing. But positive US retail sales and inflation data raised hopes of a “Goldilocks” scenario in the US. Or in other words, the US economy being resilient enough to avoid a recession but not too strong as to deter US Federal Reserve (Fed) rate cuts. This meant that most global stock market indices ended August in positive territory with the outlier being Japanese equities which ended the month down 1.16%, a victim of the carry trade unwind I mentioned last time. Interestingly, UK economic data released in August also raised hopes of a “Goldilocks” scenario in the UK, which added to the recent attraction and resilience of UK equities.

Stock markets even navigated the release of Nvidia's Q2 earnings after my last update, which was arguably the big event of August and had the potential to move markets. Despite Nvidia posting record revenues its share price slumped almost 20% into the start of September, caused by concerns over production issues with the company’s Blackwell chip, despite Nvidia assuring investors that the problem had been resolved. Many investors took profits, most likely conscious of Nvidia's high valuation and reliance on a few large customers. But in the end, Nvidia's weakness didn’t pull the broader market down.

It meant that the last week of August provided two more lessons to add to the five mentioned at the end of my last market update. Firstly there are investment opportunities beyond Nvidia and secondly the importance of diversification. For example, by the end of August the FTSE 100 moved to within 0.5% of its all-time high, while the German Dax and Euro Stoxx 600 hit new all-time highs, helped by eurozone inflation falling to a 3-year low. Other assets also enjoyed a strong month. Gold hit a new all-time high, buoyed by risk aversion and US rate cut hopes. It was a similar story for bond markets.

But September has proved just as eventful as August. In fact, the first half of September has had more than a passing resemblance to the start of August. In a case of deja-vu, September’s US jobs data suggested, once again, that the US economy could be faltering and heading for recession. This has sparked another slump in US equity markets and also global stock markets. Whereas in August global equity markets slumped between 4% and 8% in the first part of the month before rebounding, in September the drawdowns were only half as bad and the subsequent rebound has pushed most global stock markets back towards positive territory as we head towards the month’s end. The laggard once again is Japanese equities (Nikkei 225), which are still down over 2% for the month of September as I make this video, having been down around 8% earlier in the month.

But unlike August, the big event this month was the US Federal Reserve (the Fed) monetary policy decision last Wednesday. Initially the market had been anticipating a modest 0.25% cut from the Fed but the narrative rapidly changed as we approached D-day. So much so that by the time the Fed was due to announce its decision, investment markets were pricing in a 0.5% rate cut as the most likely outcome. Perhaps this ultimately paved the way for the Fed to deliver a rare 0.5% cut to its headline interest rate on Wednesday and embark on a new era of policy loosening. Even so, the move still grabbed news headlines around the world. But how did markets react? Initially, the news saw a wave of volatility across bond and equity markets, as you'd expect, which left US stock markets marginally in the red on the Wednesday. It wasn't until a day later, that equity investors appeared to settle upon a suitably positive narrative for the large rate cut, which in turn lit a rocket under global stock markets.

Part of the positivity was no doubt a result of Jerome Powell (the Fed Chair) going to great lengths to explain that the Fed wasn’t hitting the panic button ahead of a possible recession. This reaffirmed the market’s "Goldilocks" narrative and equity and bond investors didn’t need telling twice which caused stock markets to skyrocket, with the S&P 500 hitting a new all-time high (the first since July) along with the Dow Jones Industrial Average. The biggest gains were enjoyed by interest rate sensitive sectors such as tech stocks. Gold also rallied (after the US dollar dipped) while US treasury yields rose, somewhat counterintuitively. The latter was a result of the market pricing in stronger future economic growth as opposed to an economic crash.

Meanwhile, other global stock markets followed US stocks higher, by osmosis, on the assumption that an era of more aggressive policy loosening was now in full swing across the globe. Interestingly in the wake of the Fed decision, the Bank of England didn’t quite stick to the script when it held the base rate at 5%. Nonetheless the market now expects the base rate to be cut far more aggressively into 2025.

But the lessons of history tell us not to place too much emphasis on what happens in the volatile days after a rate cut but instead focus on the longer term. History also tells us that the US stock market tends to perform well in the months following a rate cut, but only if the economy avoids a deeper downturn. The market is currently taking central bankers at their word that this will be the case. But as we start to move into the final quarter of 2024, economic data releases are going to be scrutinised by investors for any suggestion that central banks have been talking up the strength of domestic economies. If they have been or the pace of rate cuts aren’t as swift as markets are pricing in, then things could turn ugly pretty quickly. In that regard, not a lot has changed even though the Fed has officially joined other central banks in cutting interest rates.

And just to make things even spicier as we head towards the end of the year, the US election campaign is heating up and will inevitably start to exert its influence on markets, before and after and it’s not all good news. More on that next time.