September 2025 Index Market Overview: Key Trends and Risks in Major Global Indices

The index market presents a complex picture in September 2025, with a few major US indices inching higher over the past month, with strength observed in the Dow Jones Industrial Average and Russell 2000 indices. The S&P 500 and Nasdaq 100 indices face significant concentration risk, with large technology companies making up a substantial portion of their composition. The Federal Reserve is facing pressure to cut interest rates, with the market projecting a 25 basis point cut in September. This comes as the economic situation is complicated by a loosening labor market and rising inflation. European markets are mixed. Despite warnings about stretched valuations and a model suggesting slowing earnings growth, investors remain sanguine, with little interest in buying downside protection.

S&P 500 and Nasdaq 100 

US equity indices have continued to inch higher, though the Nasdaq 100 was unchanged over the past month. The S&P 500 saw a 1.3% month-over-month (MoM) increase, while the Nasdaq 100 was flat. Both indices face significant concentration risk, as the top ten companies in the S&P 500 and Nasdaq 100 make up 39.8% and 71.66% of their respective indices. This concentration is particularly evident in the information technology sector. 

The S&P 500's 12-month forward P/E ratio is at 23.3x, which is above its post-millennium average of 16.4x. According to a scenario analysis, if the index's valuation were to revert to its post-millennium average, the S&P 500 could fall to 4,511, a drop of 30.6%. Similarly, the Nasdaq 100 has a 12-month forward P/E ratio of 27.4x, well above its past decade average of 23x. A return to its past decade average valuation could see the Nasdaq 100 drop to 19,336, an 18.3% decline. 

The report questions the GenAI investment theme, citing a report from the MIT Media Centre that found 95% of organizations are getting "zero return" on their GenAI investments, despite significant spending. 

FTSE 100 and DAX 40 

European markets have been mixed. The FTSE 100 gained 0.8% MoM, while the DAX 40 declined by 1.6% MoM. 

The FTSE 100's gains were led by industrial and consumer-facing companies. Analysts expect earnings to pick up, but the report suggests this optimism may be misplaced due to persistent trade headwinds. The index's valuation, however, is considered "relaxed," with a 12-month forward P/E ratio of 12.9x, fractionally below its post-millennium average of 13.3x. 

The DAX 40 weakness is attributed to a correction in large-capitalization stocks. The top five companies comprise 42.6% of the index, making it vulnerable to such corrections. The forward earnings multiples of these large companies, such as SAP and Siemens, remain elevated, suggesting the potential for further headwinds for the index. The DAX 40 is also closely tracking US market volatility. 

Key Takeaways 

The September 2025 Index Monthly Report suggests a complex outlook for these major indices: 

• US indices, particularly the S&P 500 and Nasdaq 100, are at risk due to high concentration and stretched valuations.
• The GenAI investment theme may be over-optimistic, with little tangible return on investment reported so far.
• The FTSE 100's earnings optimism is challenged by economic headwinds, though its relaxed valuation could provide some support against a major correction.
• The DAX 40 is vulnerable to further declines due to its own concentration risk and the elevated valuations of its top companies.