Categories:
Key areas of focus
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The focus this week will be on gauging sentiment across three fronts: the service sector through the ISM Services Index, the Fed through its FOMC meeting minutes, and the consumer through the University of Michigan survey. Meanwhile, third-quarter earnings season gets underway, giving investors a fresh read on corporate fundamentals and guidance.
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Bond investors endured another volatile week, as yields on some government maturities briefly touched their highest levels since 2002 before modestly retreating. Beneath the surface, the curve steepened, with the 2-year Treasury finishing roughly flat at 4.84% while longer-duration yields climbed, lifting the 10-year to 5.28% and the 30-year to 5.63%.
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Cooler inflation and a softer labor market reshaped Fed expectations, with core PCE easing to 3.0% and September payrolls rising just 29,000 alongside 60,000 in downward revisions. Futures now imply a roughly 79% probability the Fed holds on October 28, up from 36% a week earlier, and keeping the door open to eventual cuts.
Week in review
Stocks finished the week mixed as investors weighed moderating economic data against stubborn pressure from rates and oil prices. Equities traded lower on Monday as another rise in oil prices lifted 10-year Treasury yields. Socks were again modestly lower on Tuesday after the Conference Board’s Consumer Confidence index unexpectedly sank to 81.9, its weakest reading since 2014, and JOLTS job openings declined by 256,000. The tone shifted on Wednesday, supported by a softer-than-expected 0.25% rise in core PCE, which brought the year-over-year rate to 3.01% following methodological changes, an upward revision to second-quarter GDP growth to 2.2%, and a slightly better-than-expected 90,000 gain in ADP private payrolls. Stocks extended their gains on Thursday as a drop in 10-year yields helped offset another move higher in oil prices and a mixed, roughly unchanged, ISM manufacturing report. Stocks again finished higher on Friday as nonfarm payrolls rose just 29,000 with downward revisions to the prior two months.
Spotlight
The latest macroeconomic data painted a picture of an economy losing some momentum, but not in a way that would unsettle investors. Inflation came in cooler than expected, with headline PCE rising 3.4% on an annual basis in August, below expectations of 3.7%, and core PCE (the Fed’s preferred inflation gauge) moderating to 3.0% from 3.3% in July. The jobs report followed suit, as the labor market gave back its August rebound and added just 29,000 jobs, well short of the 80,000 to 90,000 expected, while revisions shaved a combined 60,000 jobs from the prior two months and unemployment rose modestly to 4.2%. In this environment, bad news is good news, as a softer labor market and moderating prices lowers the risk of a second consecutive hike and keeps the door open to eventual cuts. Futures markets reacted accordingly with the CME FedWatch now pointing to a roughly 79% probability of a hold on October 28, up from just 36% a week earlier.
Markets
Sectors
Style & Market Cap
Sources
1. Consumer Confidence
The Conference Board, US Consumer Confidence, retrieved from The Conference Board; https://www.conference-board.org/topics/consumer-confidence/
2. JOLTS Report
U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Survey, retrieved from U.S. Bureau of Labor Statistics; https://www.bls.gov/jlt/
3. Personal Consumption Expenditures Price Index (PCE)
Bureau of Economic Analysis, Personal Consumption Expenditures Price Index, retrieved from BEA, https://www.bea.gov/data/personal-consumption-expenditures-price-index
4. Second Quarter Gross Domestic Product (GDP) – Third Estimate
Bureau of Economic Analysis, GDP (Third Estimate), Industries, Corporate Profits, State GDP, and State Personal Income, 2nd Quarter 2026; State PCE, 2025, retrieved from BEA, https://www.bea.gov/news/2026/gdp-third-estimate-industries-corporate-profits-state-gdp-and-state-personal-income-2nd
5. ADP Report
ADP Research, ADP National Employment Report, retrieved from ADP, https://adpemploymentreport.com/
6. ISM Manufacturing
Institute for Supply Management, Institute for Supply Management (ISM) Purchasing Managers Index (PMI) Manufacturing Report, retrieved from ISM, https://www.ismworld.org/supply-management-news-and-reports/reports/ism-pmi-reports/pmi/september/
7. Jobs Report
U.S. Bureau of Labor Statistics, Employment Situation Summary, retrieved from U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/empsit.nr0.htm
8. CME FedWatch Tool
CME Group, FedWatch, retrieved from CME Group; https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Market Data
Morningstar Direct using Morningstar Indices
Author:
Anthony Silva
CFA®
Senior Director, Strategy Management
World Investment Advisors, LLC