September ended with mixed market performance as AI momentum lifted the Nasdaq Composite Index, while higher rates and geopolitical inflationary pressures weighed on the Dow Jones Industrial Average and S&P 500. However, recent reports showing softer job growth, cooling inflation, and easing energy prices could lead the Fed to hold rates steady at its next meeting. That could potentially set the stage for a market rebound in October, helping the month shake off its reputation for being a spooky month for investors.
Key Highlights:
- The jobs market stumbled in September as businesses added a mere 29K to the payrolls. That was well below analyst estimates of 84K. August and July job counts were downwardly revised. August was revised to reflect a gain of 133K while July showed payrolls fell by 10K. September’s job losses, combined with an increase in labor force participation, pushed the unemployment rate to 4.2%. Meanwhile, the much followed wage growth figure slipped to its lowest rate since May 2021.
- In a potentially encouraging sign for inflation weary consumers, the Federal Reserve’s preferred price gauge, the core personal consumption expenditures (PCE) price index, rose 0.20% month-to-month in August. Year-over-year, core PCE was up 3.00%. The cooler reading served to lower rate hike expectations with markets now expecting the central bank to hold rates steady at its October meeting.
- On another positive note, high energy prices didn’t seem to make much of a dent in consumer spending. Consumer spending, which accounts for more than two-thirds of economic activity, surged 0.90% last month. Spending was broad-based with motor vehicles and parts, recreational goods and vehicles, clothing, and restaurants and bars all posting gains.
October Markets: More Treats Than Tricks
It was a mixed September for the major indices. The Nasdaq Composite, propelled by strong AI momentum, finished with a monthly gain of 1.80%. Meanwhile, the Dow Jones Industrial Average and the S&P 500 slipped 4.80% and 0.45%, respectively, pressured by rising rates and energy prices from the on-going U.S.-Iran war. The 10-Year Treasury yield remained under pressure this week amid more hawkish Fed speaker comments on the need for additional rate hikes to rein in high prices. That pushed the 10-Year Treasury yield to its highest level since the turn of the century. However, a softer September jobs report and milder PCE data have markets now anticipating no change in rates at the Fed’s October meeting. The September jobs report came in much lighter than expected and was accompanied by downward revisions for both August and July. On the inflation front, energy, which has been the primary inflation driver since the onset of the war with Iran has cooled in recent weeks on signs of rising exports out of the region. West Texas Intermediate last traded at $91+ a barrel, down sharply from a September peak of $106+ a barrel. Price relief at the pump should further bolster consumer spending, which has remained robust as we head into the busy holiday shopping season.
Investors closed the books on September, which proved to be a volatile month as markets weighed strong AI momentum against rising rates and higher prices. October is historically a rocky month for markets as well. However, the month generally gets a bad rap because of a few historic, high-profile market corrections. Despite being outliers, those often tend to get etched into investors’ psyches. Stripped of superstition and examined on the historical record alone, October is itself a pretty good month for investors. Going back to 1950, the S&P 500 posts an average monthly gain of roughly +0.91%, finishing in positive territory roughly 60% of the time. The month also often tends to set the stage for a potential launchpad to a year-end rally. October resets earnings expectations which are usually dialed back in September and August, making the earnings bar far easier to clear. Institutional traders also use the month to position ahead of the year-end holidays, which often leads to some heightened volatility as positions are traded. Election years can also lead to some pre-election choppiness due to policy uncertainty. Mid-term election years, however, tend to be good for investors in October. In a mid-term election year, the month has been the best month of the year, up 3.0% on average and higher nearly 74% of the time. November follows up as the second-best month, up 2.7% on average and higher nearly 80% of the time. This October is shaping up to follow history. This week’s batch of softer jobs and cooling prices could lead the Fed to tap the brakes on more rate hikes. Softer data more broadly could lead the central bank to pause for the remainder of the year, treating investors to a “relief rally” as we approach Halloween.
The Week Ahead
Key reports ISM Services and Consumer Sentiment.
The Shifting Ground of Higher Education
American higher education is facing one of its most turbulent periods in decades. Many institutions are under financial strain as several interconnected trends reshape the sector. As a result, a number of colleges have closed in recent years, and research from the Federal Reserve Bank of Philadelphia suggests that these closures may continue at an accelerating pace.
One of the biggest challenges for higher education institutions is that the U.S. birthrate has been falling for nearly two decades. This means that there are fewer 18-year-olds, the traditional age of students when they enter college. This “demographic cliff” is exacerbated by a drop in the percentage of students who are choosing the college path directly after high school. In 2016, 70% of students went straight to a two- or four-year college, according to federal data. That rate fell to 62% by 2022, the last year for which data is available.
Students today have more alternatives to a traditional degree program, such as trade schools and online programs, and are increasingly questioning whether higher education is worth the steep cost. Additionally, federal borrowing changes create another pressure point by placing caps on student loan amounts, making expensive degrees harder to finance.
International student enrollment is declining at U.S. higher education programs due to changes in visa rules and immigration policies. International students typically pay full tuition and receive less institutional aid, so declining enrollment can significantly impact a university’s revenue.
The consequences of all of these factors have already led to school closures across the country. Birmingham-Southern College, a 168-year-old liberal arts institution in Alabama, ceased operations in 2024 after years of financial challenges. Other established institutions, including Wells College, Goddard College, Holy Names University, and Iowa Wesleyan University, have also closed in recent years with others facing a deteriorating outlook as their expenses rise faster than their tuition revenue.
An independent public interest database, College Closure Watch, tracks warning signs for possible closures across 4,907 higher education institutions. While the site cautions that its indicators are not actual predictions of closure, its data and analysis can be viewed here. The Department of Education also provides public information on financial responsibility, federal oversight, accreditation and possible other potential indicators of a school’s financial health and long term viability. This type of research and information will be increasingly important for students and families weighing their higher education options in the years to come.