S&P 500 and Nasdaq score their best September in over 15 years. Can the momentum last through the rest of the year?

By Isabel Wang

Wall Street is heading into October with a seasonal tailwind stocks don't usually enjoy

September is supposed to be Wall Street's notorious villain, rattling the stock market and driving investors to panic - but this year, it eschewed the role.

Instead, the S&P 500 SPX and the Nasdaq Composite COMP on Tuesday closed out their best September in 15 years - a surprise twist that now has investors wondering if the rally could keep running through year-end, even as warning lights flash.

The three major U.S. stock indexes scored solid monthly gains in September. The S&P 500 and the Nasdaq Composite rose 3.5% and 5.6% this month, respectively, with both booking their best September performance since 2010, according to Dow Jones Market Data.

The Dow Jones Industrial Average DJIA was up 1.9% for the month, according to FactSet data.

The rally came as investors cheered the Federal Reserve's decision earlier this month to cut its policy rate by 25 basis points, to a range of 4% to 4.25%, while penciling in two more rate reductions at its remaining meetings this year.

Meanwhile, a fresh artificial-intelligence frenzy also gave the stock market a boost, sending megacap technology stocks soaring and ushering in a new batch of companies as the next generation of AI winners.

The risk-on sentiment also propelled the Russell 2000 index RUT, the small-cap benchmark, to its first record closing high since November 2021, ending a streak of 967 consecutive trading days without a new record close, according to Dow Jones Market Data. The small-cap index advanced nearly 3% this month, according to FactSet data.

"Earnings momentum, a good-enough economy, the resumption of the rate-cutting cycle and continued signs of runway for the AI secular growth theme have been the primary catalysts supporting stocks this month," said Adam Turnquist, chief technical strategist at LPL Financial.

See: Here's what a government shutdown means for markets - and your wallet

Despite the strong momentum in September, investors will barely have time to catch their breath before a potential market-threatening risk strikes ahead of October trading. A potential U.S. government shutdown is looming over financial markets as investors are concerned the federal government could run out of funding by the end of the day Tuesday, with Democrats and Republicans still far apart on a deal to avert a shutdown.

A shutdown does not affect the government's ability to pay bondholders, so it should not have a direct impact on the financial markets. However, it could delay releases of economic data from the Labor and Commerce departments later this week, including an employment report for September that is crucial information for the Fed to make its policy decision next month.

"I don't think the delay in the jobs report will have that much of an impact. What it will be is just a headline that causes more angst," said Jay Woods, chief global strategist at Freedom Capital Markets. "Every time there's a headline we think that's going to get this market to derail or even pull back a little bit, we just get more buyers into this market."

Woods told MarketWatch that the stock market often gets volatile before a potential government shutdown but typically shrugs it off and resumes the prevailing trend - which "happens to be up this time," he said.

But the recent stock rally raises as many questions as it answers, since the very factors behind the surge in September could also weigh on the financial markets in the last quarter of the year.

For one, the September jobs report, as well as the weekly jobless-claims data, could still dominate the market's attention in the coming months, even if the numbers come in a bit late.

If the September unemployment rate comes in at or slightly above the 4.3% expectation, it could mark the beginning of a trend the market fears, and stocks may sell off initially - but that would likely reinforce expectations for at least one more rate cut, and maybe even two, before the end of the year, Woods said.

Woods also pointed to a potential Supreme Court ruling on President Donald Trump's tariffs as a key but underexamined factor that could affect markets in the fourth quarter of 2025. The Supreme Court will hear arguments on Nov. 5 in a case testing the legality of the bulk of tariffs under the International Emergency Economic Powers Act.

The effects of the first round of tariffs are expected to show up during the upcoming third-quarter earnings season. Some investors worry that potentially strong earnings growth in the third quarter has already been priced in to stocks following the recent surge.

The S&P 500 companies are projected to see 7.9% year-over-year earnings growth in the third quarter, marking the ninth consecutive quarter of growth, according to FactSet data.

Third-quarter earnings will officially take the spotlight when major banks such as JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) start reporting their quarterly results on Oct. 14.

See: The S&P 500 is about to enter its strongest quarter of the year historically, this chart shows

But putting concerns aside, Wall Street is heading into October with a seasonal tailwind stocks don't usually enjoy.

Wednesday kicks off what has been historically the best quarter of the year for the S&P 500, with positive returns 80% of the time and an average gain of 4.2% dating back to 1950, according to data compiled by the Carson Group.

U.S. stocks tend to perform even better in the fourth quarter when the stock market has set new records in September, said Sam Stovall, chief investment officer at CFRA Research.

"History shows that the S&P 500's atypical gains in August and September should not steal from Santa, as the S&P 500's strong [fourth-quarter] average return and high frequency of advance remained unaffected," Stovall said in a Monday client note. "New highs in the S&P 500 typically result in above-average three-month price gains for the S&P 500, as well as a 10-percentage point improvement in its frequency of advance."

U.S. stocks finished higher on Tuesday afternoon. The Dow rose 0.2% to end at 46,397.89 - a new record-closing high, while the S&P 500 was up 0.4% and the Nasdaq popped around 0.3%, according to FactSet data.

-Isabel Wang

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(END) Dow Jones Newswires

09-30-25 1618ET