Market Update: September 2025
Key Takeaways
- The U.S. markets have proven to be remarkably resilient this year masking significant cross-currents.
- U.S. equities are more concentrated than at any point in recent history.
- The full economic impact of tariffs has not yet been felt—continuing to create uncertainty.
The Macro Analysis
U.S. markets have proven to be remarkably resilient this year. Despite tariffs, stubborn inflation, and persistent geopolitical tensions, the S&P 500 remains near record highs—up roughly 10% year to date through August. Investors have been pulled in two directions: confidence in the transformative potential of artificial intelligence on one hand, and anxiety about deficits, trade disputes, and slowing global growth on the other.
This unusual mix has produced outsized gains in a handful of technology leaders, while leaving much of the market behind. At the same time, gold is up almost 40% year to date and Bitcoin is up more than 20%. This combination suggests investors are reluctant to sell winners, but are also hedging against potential instability.
Tech Dominance Drives U.S. Market Concentration
The durability of the market masks significant cross-currents. U.S. equities are more concentrated than at any point in recent history. Technology alone now represents about 34% of the S&P 500, and when adding other tech-related companies such as Amazon, Tesla, Netflix, and Alphabet, the weight approaches 45%. Meanwhile, U.S. stocks account for more than two-thirds of global equity market capitalization—their highest share in decades. Overseas, international markets have also posted gains in dollar terms, though much of this strength reflects currency movements, rather than improving fundamentals.
U.S. Tariff War
A key source of uncertainty remains the U.S. tariff war. Earlier this year, the government announced sweeping reciprocal tariffs, far larger than markets expected. The full economic impact has yet to be felt. Tariffs take time to work through supply chains and corporate margins, and many exemptions are still being debated.
What is clear is that tariffs add to inflation, heighten uncertainty across key industries. such as technology, autos, and retail, and make it more difficult for the Federal Reserve to lower rates even as growth slows. Retaliatory actions by trading partners—particularly China—further complicate the picture.
U.S. Bond Market
Bond markets are reflecting these tensions. The 10-year Treasury yield has hovered near 4.0-4.5% for most of the year, up from just 1.5% three years ago. Yields remain elevated due to heavy government borrowing, questions about foreign demand for U.S. debt, and lingering inflation concerns.
Typically, softer economic data would drive yields lower, but tariffs are inflationary by design, keeping pressure on rates. With more than $7 trillion of government debt maturing in the next twelve months, the Treasury’s financing needs remain substantial.
Enthusiasm and Skepticism for AI
Beyond tech companies and venture investors, AI’s impact may be felt broadly across the economy, potentially alleviating some macroeconomic challenges.
If AI sparks a significant productivity boom, it could set off a virtuous economic cycle: higher productivity means more output per worker, which tends to reduce unit labor costs and ease inflationary pressures. Lower inflation, in turn, could allow for lower interest rates, spurring investment and higher GDP growth. Faster growth strengthens tax revenues and helps reduce government debt-to-GDP ratios.
This positive feedback loop—productivity gains leading to a stronger, more stable economy—offers a sharp contrast to concerns about “stagflation”. AI may be the key to reigniting economic dynamism, rather than ushering in a dystopian future of mass unemployment or social disruption.
This perspective aligns with economists who view AI as a general-purpose technology capable of uplifting living standards. As with any technological shift, it may take years for productivity to meaningfully increase, but investors should closely watch productivity indicators: if we start seeing efficiency metrics improve thanks to AI (for example, companies automating tasks and cutting costs), it bodes well for margins and could justify higher valuations in the long run.
Our Perspective
Against this backdrop, our approach remains disciplined. Our goal is not to track benchmarks, but to protect and prudently grow client capital. We focus on high-quality companies with durable competitive advantages, strong balance sheets, and the ability to compound earnings over time. This philosophy has guided our allocations for decades and provides stability in uncertain markets while allowing participation in long-term growth opportunities.
Looking forward, we expect AI to reshape business models across industries. This transformation will unfold over the next decade with alternating periods of enthusiasm and skepticism. Valuations for leading companies may prove justified if growth continues, but their interdependence also creates risks should conditions change. We maintain meaningful exposure to these names, though below index levels.
At the same time, we are deliberately adding to high-quality businesses that have not fully participated in the recent bull run. These companies often operate in industries less favored by momentum-driven investors, but still offer compelling fundamentals and long-term growth prospects. It is not easy to lean into these opportunities when market sentiment is focused on a narrow set of winners. However, we believe building exposure to resilient companies before they return to favor will help us meet our objectives of protecting and prudently growing capital. Momentum can dominate for a time, but over longer horizons, fundamentals and discipline drive returns.
We recognize that headlines can be unsettling. Tariffs, deficits, elections, and global conflicts are real and consequential. But as trustees, our role is to look beyond short-term volatility and position portfolios for the next three to five years and beyond. By focusing on quality, diversification, and prudence, we aim to preserve capital, while participating in long-term growth opportunities. This approach has guided us for more than a century, and we remain confident it is the right course for the future.