Monthly Investment Briefing: The September Surge

The September Surge…

September surprised the sceptics. Historically the weakest month for equities, it delivered the S&P 500’s best September in 15 years, up 3.5%, while the Nasdaq surged 5.6% in local currency. AI optimism, resilient earnings, and the Fed’s first rate cut since 2024 outweighed fiscal jitters and trade tensions. Yet beneath the surface, policy uncertainty and valuation risks remain front of mind.

But the path ahead is less clear than many hoped. As Boston Fed President Susan Collins warned: “We must be careful not to ease too aggressively and reignite inflation pressures.”

The Federal Reserve delivered its first rate cut since December, lowering the funds rate to 4.00–4.25%. But the path ahead is less clear than many hoped. As Boston Fed President Susan Collins warned: “We must be careful not to ease too aggressively and reignite inflation pressures.” Inflation remains sticky, with core PCE (Personal Consumption Expenditure) near 3%, keeping the Fed on a tightrope between easing and credibility. Futures now imply one more cut this year, but with less than a two-thirds probability of a second.

Fiscal policy remains a key risk. In the UK, 30-year gilt yields briefly topped 5.6%, levels last seen in the 1990s, as markets brace for the November Autumn Budget. Across the Atlantic, U.S. deficit concerns persist and political brinkmanship over a potential government shutdown adding late-month volatility. Trade tensions resurfaced: new tariffs on pharmaceuticals and trucks were announced, while semiconductor duties rattled tech sentiment. Despite the headline risk, markets largely looked through political noise, taking comfort from still-resilient corporate earnings and well-supplied liquidity.

US equities remain heavily concentrated in a small group of AI and technology leaders. At 22.9x forward P/E, the S&P 500 trades well above its long-term average, leaving valuations stretched. AI investment continues at pace, with industry estimates now pegging AI capex at $300–$500 billion for 2025. Yet, high valuations, regulatory scrutiny, and sensitivity to interest-rate expectations mean the near-term path may be volatile. Long term, though, AI remains one of the most important drivers of equity growth – a structural theme we are maintaining exposure to, albeit with care around entry points.

Emerging-market equities showed resilience, supported by a softer dollar and relatively attractive valuations. Political risk remains, but earnings have generally surprised to the upside, and a weaker greenback is typically supportive for EM assets.

Gold and silver stole the spotlight in September. Gold hit a record high above $2,500/oz, while silver reached its strongest level in over a decade. Both metals shrugged off higher real yields as investors sought protection from fiscal and geopolitical risks. Silver’s industrial role in electronics and green tech continues to be a tailwind. We are overweight precious metal equities as they trade at historically low valuations relative to spot gold and silver prices, offering leveraged upside if record-high metal prices persist. They are also a compelling diversifier in an environment of sticky inflation and geopolitical uncertainty.

Portfolio Activity…

We have been taking profits in equities that have performed strongly, reallocating proceeds into highly liquid short-term bonds and cash. This gives us the flexibility to add to US equities on any pullback, which we believe is increasingly likely given stretched valuations and policy uncertainty. At the same time, we remain mindful of currency risk, as Sterling could weaken against the USD in the run-up to and following the Autumn Budget.

The Road Ahead…

The fourth quarter will hinge on whether tech earnings can sustain lofty valuations, how inflation shapes central bank policy, and whether governments—especially in the UK—can reinforce fiscal credibility. While rate cuts offer some relief, inflation’s persistence keeps us underweight longer dated bonds and overweight uncorrelated alternatives. Our equity stance remains close to neutral versus long-term targets, but portfolios are well diversified, with key themes including AI-driven growth, defensive hedges in precious metals and undervalued opportunities in emerging markets.

David Winckler-Head of Collective Investments