ALTERNATIVE MARKETS UPDATE – MID SEPTEMBER 2025

In the United States, macroeconomic momentum has shown signs of cooling as weaker labour market data, including sharp downward revisions to prior employment figures, have raised questions about the underlying strength of the recovery. Inflation, while still above the Federal Reserve’s long-term target, has moderated to levels increasingly seen as “acceptable” for policymakers. Against this backdrop, attention turns to next week’s FOMC meeting, where markets are broadly pricing in a 25bps rate cut. This adjustment is viewed as a pre-emptive move to support growth while ensuring that inflation expectations remain anchored. Investors will also be watching for signals on the Fed’s forward guidance, particularly how it balances cooling labour dynamics with the political scrutiny it faces over its independence.
Across the Atlantic, the European Central Bank opted to keep policy rates unchanged at its September meeting. The decision reflects both a more benign inflation trajectory and upgraded growth expectations for 2025, which provided policymakers with breathing space. However, despite the near-term pause, markets still anticipate further cuts later in the year as the ECB seeks to sustain momentum while navigating external headwinds from trade disruptions and global demand softness. Yet two of Europe’s largest economies have become sources of concern. In France, political instability and fiscal unease have driven sovereign yields sharply higher, to the point where some large corporates now borrow more cheaply than the state itself. Meanwhile, in the United Kingdom, gilt yields have surged to levels not seen in nearly three decades, intensifying scrutiny on the government’s fiscal stance and prompting calls for the Bank of England to recalibrate its quantitative tightening programme.

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RESEARCH PERSPECTIVE VOL. 259 September 2025 Alternative Markets Update In the United States, macroeconomic momentum has shown signs of cooling as weaker labour market data, including sharp downward revisions to prior employment figures, have raised questions about the underlying strength of the recovery. Inflation, while still above the Federal Reserve’s long-term target, has moderated to levels increasingly seen as “acceptable” for policymakers. Against this backdrop, attention turns to next week’s FOMC meeting, where markets are broadly pricing in a 25bps rate cut. This adjustment is viewed as a pre-emptive move to support growth while ensuring that inflation expectations remain anchored. Investors will also be watching for signals on the Fed’s forward guidance, particularly how it balances cooling labour dynamics with the political scrutiny it faces over its independence. Across the Atlantic, the European Central Bank opted to keep policy rates unchanged at its September meeting. The decision reflects both a more benign inflation trajectory and upgraded growth expectations for 2025, which provided policymakers with breathing space. However, despite the near-term pause, markets still anticipate further cuts later in the year as the ECB seeks to sustain momentum while navigating external headwinds from trade disruptions and global demand softness. Yet two of Europe’s largest economies have become sources of concern. In France, political instability and fiscal unease have driven sovereign yields sharply higher, to the point where some large corporates now borrow more cheaply than the state itself. Meanwhile, in the United Kingdom, gilt yields have surged to levels not seen in nearly three decades, intensifying scrutiny on the government’s fiscal stance and prompting calls for the Bank of England to recalibrate its quantitative tightening programme. These developments in the US and Europe have contributed to an undercurrent of global volatility that is being amplified by geopolitical flashpoints. The war in Ukraine has intensified, with Russia facing increased pressure on multiple fronts, while in Washington, President Trump is showing signs of waning patience with the conflict’s trajectory, raising the risk of more aggressive policy interventions. At the same time, Israel’s strike in Qatar has further unsettled Middle Eastern stability, feeding into energy market concerns. Layered onto this are the disruptive effects of US trade policy, which continue to weigh on global sentiment and growth expectations. In such an environment, investors are understandably becoming more cautious. This caution has provided a powerful tailwind for gold, which has surged to a fresh all-time high of $3,650 per ounce, leaving it nearly 40% higher year-to-date as the ultimate safe-haven asset of choice. Figure 1 shows the staggering gains of gold in 2025. Figure 1: Development of Gold Price in 2025, Source: Investing.com, September 2025 It is unusual to witness gold and equities rallying simultaneously in a volatile environment, yet that is precisely the dynamic shaping investor positioning today. A key driver on the equity side remains the AI theme, which continues to fuel extraordinary growth expectations. Oracle’s recent upbeat guidance, highlighting surging demand for AI-driven cloud services, reinforced the narrative of robust secular growth in the sector. However, even as capital flows concentrate heavily into AI-linked mega-caps, valuation concerns are increasingly coming to the fore. Many institutional investors are questioning whether the multiples currently embedded in these names are sustainable should earnings momentum falter or policy conditions shift less favourably. Despite those concerns, the major US indices have pushed to fresh record highs. The Dow Jones Industrial Average, the S&P 500, and particularly the Nasdaq 100 have all reached new peaks. The Nasdaq 100 stands out as the clear leader, up nearly 15% YTD, a striking reversal given it had been down almost 20% as recently as April 2025. Figure 2 shows the impressive reversal of US equities during 2025. This recovery underscores both the resilience of investor conviction in AI-driven growth and the broader willingness to look past near-term macro headwinds, at least for now. Figure 2: YTD of Dow Jones Industrial Average, S&P 500, and Nasdaq 100 in 2025, Source: Investing.com, September 2025 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Tallinn in Estonia and Dubai and Umm Al Quwain in United Arab Emirates. 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