Rate Hikes, a Weak Jobs Report, and a Market That Won’t Read the Room
By William F. Davis, CFP®
Happy October. The leaves are turning, and the Phillies’ season ended Thursday night the same way it’s ended the last four Octobers, a bullpen collapse in an elimination game. They had Atlanta on the ropes after a comeback win in Game 2. By the time Thursday’s loss was final, Red October had lasted less than 24 hours. Some things in this market are more predictable than others, and apparently that’s one of them.
Let’s get into it.
September by the Numbers
September was a mixed month. The S&P 500 closed at 7,652 on September 30, down about 0.5% for the month, its worst month since June. Zoom out to the full quarter and the picture brightens: the index gained roughly 2% for Q3, and year to date it’s up approximately 12.9%.
The forward 12-month P/E ratio sits at about 19.3, below the 5-year average of 19.8. For anyone who doesn’t spend their mornings staring at valuation metrics, the P/E ratio simply tells you how much investors are paying today for a dollar of a company’s expected earnings over the next year. A P/E of 19.3 means investors are paying $19.30 for every $1 of projected profit. The higher that number climbs, the more the market is betting on future growth rather than paying for what a company is earning right now. That’s a real pullback from the 20-plus readings we were looking at earlier this year, which matters because valuations had gotten stretched. Earnings have also been doing their part: in the most recently completed season, 86% of S&P 500 companies beat EPS estimates, the highest rate since Q2 2021.
The Fed, Jobs, and a Story That Flipped in 24 Hours
Here’s where this month gets interesting. The Fed hiked 25 basis points in September to 3.75% to 4.00%, its first hike since 2023, and for weeks the bond market had been pricing in a near-certain follow-up in October. Then the September jobs report landed this morning, and it landed soft. Nonfarm payrolls rose just 29,000, well below the 53,000 to 70,000 range economists expected, and the unemployment rate ticked up to 4.2% from 4.1%.
That’s a sharp reversal from August, when payrolls came in at 162,000 and ADP’s early September read showed private payrolls up 90,000. The labor market looked like it was reaccelerating. This morning’s print says otherwise, and the bond market noticed immediately: the 10-year Treasury yield, which had touched 5.34% earlier this week, its highest since 2002, fell back toward 5.18% on the news. Odds of an October hike have dropped from over 60% to roughly 35 to 40%.
On inflation, worth separating the two measures, because they’re not interchangeable and the financial media tends to blur them together. CPI, the Consumer Price Index, tracks a fixed basket of goods and services and is the number that makes headlines. PCE, the Personal Consumption Expenditures index, is what the Fed actually targets, and it adjusts for the fact that people substitute away from pricier items, which tends to make it run a little cooler than CPI over time. August CPI showed headline at 3.4% and core at 2.4%. PCE came in at headline 3.4% and core 3.0%, a touch hotter than CPI’s core reading this time around, though part of that reflects a BEA methodology revision rather than pure disinflation.
The bigger picture hasn’t changed even though one data point did. National debt is north of $40 trillion with roughly $1 trillion in annual interest expense, and the Treasury has been quietly doubling its long-bond buyback operations to keep a lid on long-term yields while the Fed hikes short-term rates. One arm of the government pumping the brakes while another eases off the accelerator is still the tension worth watching, regardless of what October’s meeting ends up delivering.
Chart of the Week: Today’s Mortgage Rate Isn’t as Scary as It Feels
Source: Freddie Mac data via Creative Planning / Charlie Bilello
A 30-year fixed rate near 6.95% sounds brutal until you look at the full picture. Rates peaked at 18.63% in 1981, spent most of the 1990s and 2000s in the same 6% to 8% range we’re sitting in now, and only looked “cheap” during the brief, unusual stretch near 3% in 2020 and 2021. We’re not in uncharted territory. We’re back to something closer to normal after a strange decade of free money.
Portfolio Positioning
This was the exact kind of year our portfolios are built for. Our emerging markets exposure, through IEMG, led the equity sleeve, a reminder that staying diversified beyond US large-cap names paid off even as the “Mag Seven” dominated headlines. But the bigger point isn’t any single ticker. It’s that the portfolio didn’t need the Fed to cooperate to work.
A Fed that hikes once and then gets yanked back by a weak jobs report, in the same month, is precisely the kind of whipsaw that punishes anyone trying to position around what the Fed will do next. Our fixed income sleeve is built with that unpredictability in mind: shorter-duration and floating-rate pieces that hold up when rates climb, alongside credit and income positions that keep working when the Fed pauses. We’re not betting the portfolio on October going one way or the other, because we don’t have to.
A Word on Fraud
Scammers stole over $10 billion from everyday people in 2023, and the tactics keep getting more convincing. Per the American Bankers Association’s Banks Never Ask That campaign, watch for these five red flags:
- An unexpected link you weren’t expecting
- Urgent or fear-inducing language
- A surprise attachment
- A request for your PIN, password, or Social Security number
- Pressure to log into or send money through a payment app like Zelle or Venmo
Real banks do not operate this way. If someone claiming to be your bank, the IRS, or even me is asking you to click, verify, or send money right now, stop and call the number on the back of your card or our office line instead. The five seconds it takes to double check will always be cheaper than the alternative.
Market Volatility
This is the part of the newsletter where I remind you that a Fed hike and a weak jobs report arriving in the same month, with the bond market lurching in response to both, is not a reason to touch a plan built around your goals.
September and the first day of October gave the market a real test: a hike, a surging-then-retreating 10-year yield, and a jobs report that flipped the entire conversation about the Fed’s next move in the space of one morning. The S&P 500 still closed out the quarter up roughly 2%. That doesn’t guarantee the next quarter looks the same. It does mean that trying to time your plan around what the Fed does next is a losing game, because even the people whose entire job is predicting the Fed got this month wrong by a wide margin.
Your plan isn’t built around the October 28 meeting. It’s built around your goals, your timeline, and your risk tolerance. Those didn’t change this morning, and they won’t change based on what the Fed decides this month either.
If you have questions about how the current rate environment affects your specific situation, whether that’s your fixed income allocation, a mortgage decision, or a Roth conversion, that’s exactly the kind of conversation worth having.
One More Thing
Every January, a group of us laces up for the Austin International Half Marathon to raise money for A Love for Life, a nonprofit dedicated to pancreatic cancer research. The race is this coming January 17. It’s a cause many of us care about deeply, and the organization is led with real heart, by someone tireless, generous, and entirely in it for the right reasons. Pancreatic cancer is the fourth leading cause of cancer death in this country, with a five-year survival rate of just 13% and still no reliable way to catch it early. Every dollar raised goes directly to research at Penn’s Abramson Cancer Center, no administrative cut taken out.
If you’d like to sponsor the run, any amount helps, and it’s 100% tax deductible. You can donate here:
Austin International Half Marathon – A Love for Life
We’re greatly appreciative of your support.
Enjoy October.
Thanks,
Bill
Further Reading
10-year Treasury yield dives after much weaker-than-expected jobs report – CNBC
www.cnbc.com/2026/10/02/treasury-yields-bonds-nonfarm-payrolls.html
The Fed Just Raised Rates. Here’s Why Our Portfolios Are Built for This. – Vericrest Private Wealth
vericrestprivatewealth.com/the-fed-just-raised-rates-heres-why-our-portfolios-are-built-for-this
There Are Two Ways to Pay for Grandkids’ Tuition. Only One of Them Also Shrinks Your Estate. – Vericrest Private Wealth
Banks Never Ask That – American Bankers Association
#CFP #financialplanning #feeonlyadvisor #vericrestinsights
William F. Davis is a CERTIFIED FINANCIAL PLANNER™ and Managing Partner with Vericrest Private Wealth LLC, a financial advisory firm in Newtown, Pennsylvania.
Vericrest Private Wealth LLC (“Vericrest”) is an SEC registered investment advisory firm. The information provided herein should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or investment advisory service. Past performance is no guarantee of future results, and there is no guarantee that future investments will be profitable. While we believe that third party information provided is accurate, Vericrest does not guarantee or otherwise warrant such information. For more information please contact Vericrest or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) to review important disclosures about our firm.
