US stocks ended September on a weaker note, with the S&P 500 falling 0.3% on Wednesday, despite fresh inflation data that showed price pressures were moderating more than economists had expected.
The decline capped a difficult month for the broader stock market, as rising US Treasury yields and higher oil prices continued to weigh on investor sentiment. The S&P 500 fell about 0.7% for September, while the Dow Jones Industrial Average dropped 4.9%. The Nasdaq Composite was the exception, gaining about 1.7% during the month.
Inflation cools but stocks remain under pressure
The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 3.4% year over year in August, below the 3.7% increase economists had expected.
The softer inflation reading reduced expectations for another Federal Reserve interest-rate increase in October. Market pricing showed the probability of at least a 25-basis-point hike falling to around 37%, compared with substantially higher expectations in the previous week.
Despite the encouraging inflation data, investors remained concerned about elevated borrowing costs and the possibility that interest rates could stay higher for longer.
Treasury yields climb to multiyear highs
The bond market was one of the biggest sources of pressure during September.
The benchmark 10-year US Treasury yield climbed sharply during the month, recording its largest monthly increase since September 2022. On Tuesday, it reached around 5.29%, its highest level since 2007.
The 30-year Treasury yield also reached levels not seen since 2002, reflecting investor concerns over inflation, government borrowing, economic growth and the potential path of Federal Reserve policy.
Higher Treasury yields can put pressure on stocks because they increase borrowing costs and can make relatively safer fixed-income investments more attractive compared with equities.
Iran war adds to market uncertainty
The ongoing US-Iran war also contributed to market volatility during September, particularly through its impact on energy prices.
Oil prices rose sharply during the month as investors assessed the potential effects of the conflict on global energy supplies. Brent crude gained roughly 14% in September, while US West Texas Intermediate crude rose about 5%.
Higher energy prices have added to inflation concerns and complicated the Federal Reserve’s efforts to determine whether interest rates should remain elevated.
While the geopolitical turmoil has weighed heavily on the bond market, US equities have shown greater resilience, with technology stocks helping limit the broader market’s losses.
Wall Street heads into October facing multiple risks
The September performance leaves investors entering the fourth quarter with several issues to monitor, including Treasury yields, inflation, oil prices, Federal Reserve policy and the economic impact of the Iran conflict.
Although Wednesday’s inflation report eased immediate concerns about another October rate hike, stronger-than-expected economic data also suggested that the US economy remains resilient.
The combination of persistent economic growth, elevated Treasury yields and geopolitical uncertainty could therefore remain a key driver of market movements as trading moves into October.
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