In Short

• Despite early-April volatility and mounting political and macro pressures, risk assets have rallied, as the S&P 500 had its strongest September since 2015 and the Russell 2000 hit a new record high.
• International equities outperformed, with Non-U.S. Developed and Emerging Market Equities both up over 25% YTD amid U.S. dollar weakness, falling rates, defense outlays and strong earnings.
• With the Fed’s move to reengage its rate-cutting cycle, we remain optimistic in our overall outlook for growth and risk assets over the medium term, while maintaining a diversified, multi-asset class approach to investing.

The Month in Markets

For many businesses across the world, the close of September marks the end of the fiscal year…and what a year it has been. In many ways, it appears that as issues piled up—fiscal and tariff impact uncertainty, geopolitical risks, politicized economic data and a U.S. government shutdown—so did market gains. Few would have taken the bet six months ago that risk assets would be performing this way after markets plummeted at the beginning of April, and yet the S&P 500 has rebounded by over 30% since April 8, and is up nearly 14% year-to-date through September. The index closed out its strongest September (historically, its weakest month on average) since 2015, up 3.5%.

Domestic large-cap stocks were not alone in the rally; small caps continued to move higher to close out the third quarter, with the Russell 2000 hitting its first all-time high since November 2021, up over 12% in Q3. Admittedly, although small caps have benefited from potential looser monetary policy, the ongoing secular bid to artificial intelligence continues to benefit mega-cap tech stocks despite their high valuations. In essence, AI capex spending, estimated at over $500 billion across the major platforms over the next two years, is acting like a stimulus plan for the tech ecosystem and has, in some ways, helped investors stomach lofty prices. This optimism is exhibited by the strength of the Magnificent 7 stocks, which drove over 60% of the S&P 500 return in the third quarter.

‘Mag 7’ Contribution to S&P 500 Returns in 3Q 2025

 

Source: FactSet, as of September 2025.

Investors would be remiss to ignore the strong outperformance in both Non-U.S. Developed and Emerging Market stocks so far this year, which are both up over 25% year-to-date through September. This marks a surprising shift after an era of peak “U.S. exceptionalism” in which a single American company, Nvidia, now exceeds the value of the entire U.K. stock market. U.S. dollar weakness has acted as a tailwind for international markets—the dollar suffered its worst first half since 1973 this year—alongside falling rates, defense spending and strong corporate earnings.

Rebalancing Risk into Year-End

The month was perhaps most defined by the Fed’s decision to cut interest rates by 25 basis points—the central bank’s first cut since December 2024, with the market currently pricing in 100 – 120 basis points of cuts over the next 12 months. While the Fed’s move to reengage its rate-cutting cycle was broadly expected following Fed Chair Jerome Powell’s speech at Jackson Hole, coupled with the continued deceleration in the U.S. labor market, there were some other takeaways from the meeting that perhaps shine a brighter light on what to expect as we head toward 2026. For example, an update to the Summary of Economic Projections painted a rosier picture of the U.S. economy than the prior quarter. The Fed is now forecasting that the U.S. economy will grow by 1.6% in 2025 and 1.8% in 2026, a 0.2% increase for both years compared to June’s projections. Coupled with the recent upward revision to Q2 GDP—the third and final estimate saw an annualized rate of 3.8%, up from 3.3% in the second estimate—we are once again reminded of the resiliency of the world’s largest economy.

Though there have been some concerns surrounding the politicization of economic data and the threat of political influence over the central bank, the lack of any real momentum behind a 50-basis-point cut supports the view that the Fed remains both independent and cognizant of the challenges another round of structural inflation could bring. However, the government shutdown presents its own challenges as a delay in the release of nonfarm payrolls data coupled with inadequate staffing to collect CPI data could weigh on both the equity and bond markets, particularly given expectations that the Fed will continue to ease into the end of the year. Without this important government-provided data, the Fed and investors will be forced to look more closely at secondary data sources; there may also be additional noise in the data that will need to be appropriately evaluated.

Looking ahead to the rest of the year, we once again emphasize the importance of a multi-asset approach to investing. In a complex and unpredictable environment, investors should be cautious about where we go from here. This is highlighted by the strength of safe-haven assets, such as gold, so far this year. However, we remain optimistic in our outlook for growth and risk assets over the medium term, a view that has been consistent throughout the year. What is important, especially now, is that investors ensure portfolios are diversified across multiple asset classes, providing a balance of exposures across public and private markets that blend attractive sources of risk-adjusted returns. We also continue to see value in active management in less-efficient areas of the market, especially to help navigate volatility and potentially offer downside protection.

Portfolio Implications

Equities were higher to close out a broadly strong quarter, led by emerging market stocks. We maintain an overweight to small- and midcaps on the expectation these companies will continue to benefit from rate cuts, deregulation and pro-business policies. Developed non-U.S. equities should continue to benefit from the rotation as well, although there are opportunities to be more tactical on signs of economic divergence. Otherwise, we maintain an “at-target” view across equities. Admittedly, short-term political volatility may create some pressure. However, any larger pullbacks (10% or more) could be an appropriate trigger to add risk, especially for those holding excess cash. In this more challenging environment, we favor employing active management to select companies with high earnings visibility.

Fixed Income was higher as yields fell following the Fed’s September rate cut. We remain constructive on investment-grade fixed income, but see opportunities to deploy cash tactically, adding and/or shortening duration based on the movement of rates. Expected cuts of U.S. policy rates by the Fed should continue to boost performance of U.S. fixed income, but the One Big Beautiful Bill Act has added a level of uncertainty to the mix, as investors may continue to demand higher term premiums to compensate for the risk of holding long-term government bonds at a time when large federal deficits are creating uncertainty about future economic stability. Multi-sector bond funds may be an appropriate vehicle to consider, given the levers a manager can opportunistically pull across sector, duration profile and region.

With a fading liquidity drought and a more recent pickup in mergers and acquisitions and other deal activity, we believe significant opportunities still exist within Private Markets, as investors should expect new buyout activity and an unlocking of distributions. That said, liquidity and capital solutions providers will likely remain important to work through the substantial backlog of legacy investments. As a result, we continue to see compelling opportunities across secondaries, midlife co-investments and capital solutions. We are cautious on core private real estate, but this is offset by what we see as abundant market-dislocation opportunities in the value-add and opportunistic sectors and, particularly, real estate secondaries. Neuberger Berman’s deep relationships and unique position within the private equity ecosystem have translated into record levels of deal flow across our platform.

Index Returns as of September 2025

Source: Bloomberg, Total returns as of September 30, 2025. S&P 500 Index is represented by S&P 500 Total Return Index. Nasdaq Composite NASDAQ-Composite Total Return Index. Dow Jones is represented by Dow Jones Industrial Average TR. Large Cap is represented by Russell 1000 Total Return Index. Mid Cap is represented by Russell Midcap Index Total Return. Small Cap is represented by Russell 2000 Total Return Index. All Cap is represented by Russell 3000 Total Return Index. Large Cap Growth is represented by Russell 1000 Growth Total Return. Large Cap Value is represented by Russell 1000 Value Index Total Return. Small Cap Growth is represented by Russell 2000 Growth Total Return. Small Cap Value is represented by Russell 2000 Value Total Return. ACWI is represented by MSCI ACWI Net Total Return USD Index. ACWI ex US is represented by MSCI ACWI ex USA Net Total Return USD Index. DM Non-U.S. Equities is represented by MSCI Daily TR Gross EAFE USD. EM Equities is represented by MSCI Daily TR Gross EM USD. Cash is represented by ICE BofA US 3-Month Treasury Bill Index. U.S. Aggregate is represented by Bloomberg US Agg Total Return Value Unhedged USD. Munis is represented by Bloomberg Municipal Bond Index Total Return Index Value Unhedged USD. Munis Short Duration is represented by Bloomberg Municipal Bond: Muni Short (1-5) Total Return Unhedged USD. Munis Intermediate Duration is represented by Bloomberg Municipal Bond: Muni Intermediate (5-10) TR Unhedged USD. Investment Grade is represented by Bloomberg US Corporate Total Return Value Unhedged USD. High Yield is represented by Bloomberg US High Yield BB/B 2% Issuer Cap Total Return Index Value Unhedged USD. Short Duration is represented by Bloomberg US Agg 1-3 Year Total Return Value Unhedged USD. Long Duration is represented by Bloomberg US Agg 10+ Year Total Return Value Unhedged USD. Global Aggregate is represented by Bloomberg Global-Aggregate Total Return Index Value Unhedged USD. EMD Corporates is represented by J.P. Morgan Corporate EMBI Diversified Composite Index Level. EMD Sovereigns – USD is represented by J.P. Morgan EMBI Global Diversified Composite. Commodities is represented by Bloomberg Commodity Index Total Return. Commodities ex Energy is represented by Bloomberg Ex-Energy Subindex Total Return. U.S. 10-Year Yield is represented by US Generic Govt 10 Yr.