Software Index

State of the Market

September marked another milestone for equity markets, with the Nasdaq and S&P 500 hitting record highs. Fueled by expectations of Federal Reserve interest rate cuts and robust corporate earnings, the rally was led by AI giants like Nvidia and Microsoft, which saw strong revenue growth.

Software continued to drive market momentum, with a landmark deal between Oracle and OpenAI. Oracle will provide its cloud infrastructure to power OpenAI’s next-generation AI models in a multi-year agreement valued at approximately $300 billion. The deal, part of Project Stargate, aims to enhance AI scalability and enterprise adoption by delivering massive compute capacity. This partnership underscores the software sector’s pivotal role in AI innovation, with Oracle’s stock surging 36% upon deal announcement.

Despite modest market confidence, the Bureau of Labor Statistics delivered a sobering update on September 9th. Preliminary benchmark revisions slashed nonfarm payroll estimates by 911,000 jobs for the period from April 2024 to March 2025, marking the largest adjustment in over a decade. Additionally, August nonfarm payrolls grew by only 22,000 jobs, a sharp miss from the 75,000 expected and the weakest gain since late 2024. This shortfall, 71% below forecast, suggests overstated hiring may mask underlying labor market weakness, raising recession concerns.

The labor market data has cemented expectations for Federal Reserve action. According to the CME FedWatch Tool, there is a 94.5% probability of a 0.25% rate cut at the September meeting. While this could provide economic relief, the effectiveness of rate cuts hinges on clearer labor market trends.

Despite labor market concerns, broader economic indicators remain strong. Q2 GDP grew at a 3.3% annualized rate, driven by higher consumer spending and exports. Q3 GDP forecasts have been upgraded to 3.1% growth. The IMF also recently revised its 2025 global GDP forecast to 3.0% from 2.8%, citing resilient U.S. consumption and China’s stimulus, though it warned that escalating tariffs could reduce global growth by 0.2–0.4 percentage points.

Inflation showed signs of reacceleration but remains manageable. In August, the Consumer Price Index rose 2.9% year-over-year, up from 2.7% in July. Higher shelter costs and tariff-related pass-throughs drove the increase, though a 0.2% decline in grocery prices and stable energy costs provided some offset. The Producer Price Index for August unexpectedly fell 0.1% month-over-month, lowering annual inflation to 2.6% from 3.1% in July. Businesses absorbed some tariff costs, though service prices remained steady at 2.9%.

Markets reflect a delicate balance of optimism and caution. Strong GDP growth, cooling producer prices, and anticipated Fed rate cuts provide a buffer. Key indicators to monitor include the September payroll report, Fed policy decisions, and U.S.-China trade talks, as they will shape a potentially volatile autumn.