Markets Engaged
September 8, 2025
In August, Taylor Swift said yes, and so did small caps. The Russell 2000 Index closed +9.36% followed closely by the S&P 600 at +8.84%. That is the highest single month return for the Russell 2000 Index since November2020. It is more than double the monthly return for the S&P 500 that came in at +3.68% which, in turn, was outpaced by the NASDAQ Composite Index at +3.97%. International equities were close behind domestic equities. Developed markets led emerging markets which closed at +3.88%and +2.87% as tracked by the MSCI ACWI ex USA IMI Index and the MSCI Emerging Markets Index respectively. Debt markets saw little sustained change, yields tightened marginally, and municipal bonds had net inflows. Housing starts, inflation reports, job reports, all had their typical influence on fixed income returns but they ended the month relatively flat at +0.38% as tracked by the Bloomberg US Aggregate Total Return Value Unhedged USD Index.
We believe the robust market performance in August indicates a strengthening economy, which coupled with anticipated Federal Reserve actions has led to a drop in the CBOE Volatility Index (VIX) that reflects market volatility. Commodities--broken down by sector--produced mixed signals, but Bloomberg's Commodity Index (BCOM) closed+2.15%. The index is representative of oil/energy sectors, precious metals, and agricultural commodities. Throughout the month the dollar has continued to depreciate relative to other major currencies as tracked by Bloomberg’s U.S. Dollar Index (BBDXY), which closed -0.83%.
In his speech at the Jackson Hole Symposium, hosted annually by the Federal Reserve Bank of Kansas1, Powell asked about the implications of inflation on monetary policy while Travis Kelce had another question in mind. Powell directly addressed concerns about the continued high rates and the effects they stand to have on the labor market. However, he stood by the reasons that the Fed has maintained their restrictive stance, quoting inflation and the sustainable balance between aggregate supply and demand.
Only a week after Powell addressed the labor market concerns, the Personal Consumption Expenditures (PCE) report was released2 and it only weakened consumer sentiment as it affirmed that inflation would continue to require monitoring if it is to fall to the coveted 2% level, the Fed’s ‘End Game’. The PCE report included an increase in the core index marking its fourth consecutive increase which indicates that inflation is, indeed, not dropping to near the aforementioned 2% level. Following the commentary in Jackson Hole, Bloomberg's World Interest Rate Probability (WIRP) Function was pricing in cuts at the September meeting, but following the release of the PCE report on the last trading day of the month Bloomberg's WIRP function isn’t pricing in another cut until the meeting in late October. Investors understand the Fed’s emphasis on data-driven decisions ‘All Too Well’, so it could be interesting to watch how the Fed will navigate the thin line between labor market concerns and enduring inflation.
Looking ‘Back to December’ investors were anticipating 1-2 cuts in 2025. With only three Fed meetings remaining, two cuts is seeming like an increasingly less likely scenario. Despite the uncertainty about the contractionary position of the Federal Reserve, equities and bonds alike have resiliently pressed forward.
Hazel Allen
Portfolio Management Analyst
1https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm
Published August 22, 2025; Accessed September2, 2025
2https://www.bea.gov/news/2025/personal-income-and-outlays-july-2025
Published August 29, 2025; Accessed September 2, 2025
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell3000 Index.
The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The MSCI ACWI ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22of 23 Developed Markets (DM) countries (excluding the United States) and 24Emerging Markets (EM) countries.
The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is a float-adjusted market capitalization index.
Bloomberg U.S. Aggregate Total Return Value Unhedged Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Th index includes Treasuries, government-related and corporate securities, MBS(agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
The CBOE Volatility Index (i.e., “the VIX”) is a key measure of market expectations of near-term volatility conveyed by S&P500 stock index option prices.
The Bloomberg Commodity Index(BCOM) is made up of 24 exchange-traded futures on physical commodities, representing 22 commodities which are weighted to account for economic significance and market liquidity.
The United States Dollar Index(DXY) measures the performance of the dollar against a basket of other currencies including EUR, JPY, GBP, CAD, CHF and SEK.
Bloomberg's World Interest Rate Probability(WIRP) function is a chart that shows the probability of different interest rates for the US benchmark rate. The chart is based on interest rate caps and floors, as well as options on Treasury futures.
The Reports' commentary, analysis, opinions, advice, and recommendations represent those of Stadion Money Management and are subject to change at any time without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass Stadion reserves the right to modify its current investment strategies based on changing market dynamics or client needs. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” "believe,” and/or comparable terminology.
No assurance, representation, no warranty is made by any person that any of Stadion’s assumptions, expectations, objectives, and/or goals will be achieved. There is no guarantee of the future performance of any Stadion portfolio. This material is for information use only and should not be considered financial advice. The data presented has been gathered from sources believed to be reliable; however, their accuracy, completeness, or reliability cannot be guaranteed. We make no warranties and bear no liability for your use of this information.
Stadion Money Management, LLC ("Stadion") is a registered investment adviser under the Investment Advisers Act of 1940.Registration does not imply a certain level of skill or training. More information about Stadion, including fees, can be found in Stadion's ADV Part 2, which is available upon request.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money.
SMM-2509-6