September gave us plenty to watch as we wrapped up the third quarter. The economy continued to show resilience, but underneath the headline numbers, the picture was much more mixed. Hiring has slowed considerably, inflation remains stubborn, and rising oil prices and interest rates created some additional challenges for both stocks and bonds.
The Federal Reserve also raised interest rates for the first time since 2023, while longer-term Treasury yields moved sharply higher. That combination made September an unusual month in which many stocks and bonds struggled at the same time.
Despite all of that, stocks still ended the third quarter modestly higher—which I think is a good reminder that the economy and the stock market don’t always move in lockstep.
Major U.S. Stock Indexes
Technology carried the month. It continued to be the strongest area of the market in September, particularly companies tied to AI and semiconductors. The rest of the market had a much more difficult month as higher interest rates put pressure on valuations.
- The S&P 500 slipped -0.45% in September, but climbed 2.03% for the quarter.
- The Nasdaq 100 rallied -3.23% in September, but only showed a 0.44% gain for the quarter.
- The Dow Jones Industrial Average slumped -4.29% this month, and ended the quarter -2.70%.
What Shaped the Month
The economy is still growing.
Second-quarter economic growth was revised higher to a 2.2% annual rate, helped by stronger consumer spending and business investment. That’s encouraging because it tells us the economy has remained resilient, but strong demand can also make the Fed’s job of bringing inflation down more difficult.
The job market is cooling.
We received another piece of that puzzle last Friday. The economy added just 29,000 jobs in September, while unemployment edged up to 4.2%. Previous months were also revised lower.
I’ve talked before about the “low-hire, low-fire” labor market, and I think that still describes the environment fairly well. Companies aren’t necessarily laying off large numbers of workers, but they aren’t hiring aggressively either. This is something I’m watching closely because a further slowdown in employment could eventually affect consumer spending and economic growth.
Energy prices became another inflation concern.
Diesel prices rose sharply in September as the U.S.-Iran conflict disrupted global energy markets. The national average passed that mark for the first time in September and by late September was up about 70% since the U.S.-Iran conflict began, as attacks on tankers and Russian refineries, along with Moscow’s export ban, left refiners unable to keep up. Diesel matters beyond what we pay at the pump because it is used to move so many of the goods we buy. Higher transportation costs can eventually show up in the prices of food, deliveries and other everyday products.
The Fed raised rates again.
At its September meeting, the Federal Reserve increased its benchmark interest rate by a quarter of a percentage point to 3.75%-4.00%.
The Fed is in a difficult position. Inflation is still above its 2% target, which argues for keeping rates higher, while the labor market is clearly slowing, which argues for some caution. That balancing act will be one of the biggest things I’m watching as we finish the year.
Bonds had a difficult month—but higher yields aren’t entirely bad news.
The 10-year Treasury yield rose to its highest level since 2007. When interest rates rise quickly, existing bond prices generally fall, which is why bonds didn’t provide as much protection as we would normally hope to see during a weaker stock market. There is another side to that story, though. Higher yields also mean that bonds can provide more attractive income going forward. That gives us additional options when we’re looking for income, diversification or ways to reduce overall portfolio risk.
So, What Does This Mean for Us?
This is where I think it’s important to separate what happened last month from what we should do about it.
September gave us some conflicting signals. Economic growth has held up, technology and AI continue to show strength, and corporate America has remained resilient. At the same time, we’re seeing a softer labor market, stubborn inflation, higher borrowing costs and geopolitical uncertainty. That doesn’t tell me we should run away from the market. It tells me we need to continue being selective and diversified.
I’m continuing to look for areas of the market that are showing strength while also paying attention to risk. Depending on the portfolio, that can mean using bonds for income and stability, maintaining exposure to areas that continue to participate in the market’s growth, and using strategies that can provide some additional downside protection when I think it’s appropriate.
I don’t believe every market environment calls for the same portfolio. My job is to continually evaluate that balance and make adjustments as conditions change.
What I’m Watching in October
October should give us more information about whether September’s jump in energy prices and bond yields was temporary or something more lasting.
The mid-month consumer price report will be the key test. The next inflation report will be especially important. If higher energy costs remain mostly contained to fuel, that would be one thing. If we start seeing those costs spread more broadly into areas like housing, insurance and services, the Fed may have a more difficult decision ahead.
I’ll also be watching the labor market, bond yields, corporate earnings and whether the strength we’ve seen in technology begins to broaden into other areas of the market.
Cindy Foy Hunter, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
© 2026 Cindy Foy Hunter, cindy@foyfinancial.com, www.foyfinancial.com