Market Outlook#5 – September 2025 US Stock Market Outlook | Nasdaq, Fed Rate Cuts & Hydrogen

September 2025 US Stock Market Outlook | Nasdaq, Fed Rate Cuts & Hydrogen

1. Cash Allocation and Initial Strategy

At the beginning of September, I significantly increased my cash holdings due to uncertainty about the market’s path following the Fed’s rate cut.

Right after the cut, the market turned upward. I invested in the hydrogen sector, which I viewed as undervalued, and captured meaningful gains. In the fourth week of September, however, equities pulled back—triggered not by data but by the Fed’s remarks, which made the move harder to anticipate.

2. Inflation and Employment Indicators

U.S. inflation remains above the 2% target:

• August PCE: +0.3% m/m
• Core PCE: +0.2% m/m
• PCE YoY: 2.7%, Core PCE YoY: 2.9%

Employment remains resilient (weekly jobless claims: 218k, a two-month low). The market interprets strong labor as a reason to delay further cuts, creating a dynamic where:

• Strong jobs → fewer cuts priced → equities fall
• Weak jobs → more cuts priced → equities rise

This fixation on rate cuts—rather than fundamentals—has become a defining feature of the tape.

3. Powell’s Remarks and Valuation

“Fed Chair Powell pointed out that stocks are ‘fairly highly valued.’ Bank of America noted that 19 out of 20 valuation metrics it tracks show historically expensive conditions.”
Business Insider (link)

When Powell said on Sept 23 that “asset prices are fairly high,” the Nasdaq and tech sold off immediately—another sign that the market is reacting more to Fed rhetoric than to underlying earnings power.

4. Healthy Corrections & Historical Context

From my study and experience, the deepest drawdowns tend to occur when markets are ignored. After the 1929 depression and the 2000 dot-com bust, neglect amplified declines. Today, by contrast, policymakers are openly calling out excess—suggesting an attempt to induce a healthier correction, not herald collapse.

“Corrections are healthy. They’re normal. What’s not healthy is straight-up … euphoric markets. That’s how you get a financial crisis.”
Axios – Treasury Secretary Scott Bessent (link)

For sustained gains, a measured pullback is not only natural but necessary—even if the drawdown is 10% or 20%.

5. Geopolitical Risks

• Middle East: Kurdish crude exports remain stalled; WTI pushed above $65.
• Russia–Ukraine: ongoing conflict and European provocations.
• China: persistent pressure around Taiwan and regional dominance.
• U.S. trade policy: Sept 26 tariffs (pharma 100%, heavy trucks 25%, furniture 30%, etc.; effective Oct 1) risk supply-chain shock and inflation re-acceleration.

6. Strategic Implications

“Morgan Stanley said stocks are at risk of a correction if the Fed makes the right call on the economy … the market is overly reliant on rate-cut expectations, and if the Fed fails to meet those expectations, a correction is likely.”
MarketWatch (link)

I agree. Positioning is skewed toward a dovish Fed; small policy surprises can magnify volatility.

7. Hydrogen Sector: My Positioning

I still view hydrogen as undervalued, but short-term risks are high.

• Near term: take partial profits to manage risk.
• Mid/long term: 7 U.S. hydrogen hubs and 2030 clean-hydrogen targets remain supportive; Microsoft/Equinix fuel-cell pilots are promising but still early.

Conclusion

Rates vs. equities, the paradox of jobs/inflation, persistent geopolitics, and hydrogen’s risk/reward all point to a market over-reliant on the Fed’s words. My approach: protect on the way down, stay selective on structural growth themes on the way up.