September was unable to overcome its historically-based expectation of negative returns, but equity indices across the board posted only modest declines. Incongruently, bond markets struggled through the month, as interest rates ticked to levels not seen in nearly 20 years. A culmination of factors – higher oil prices, fiscal deficits, and large volumes of debt issuance to support the AI boom- drove interest rates higher and bond prices lower. The Federal Reserve stepped in with its first rate hike, a 0.25% increase in the Fed Funds rate, in several years, but its tough talk against inflation was not enough to moderate long-term yields for long. Differently from the most recent hiking cycle that occurred in 2022, this cycle is not to combat runaway inflation, but should be more modest in scale to finally put to rest inflation that has hovered slightly higher than the Fed’s target over the past several years. If the Fed is successful in this goal, markets can look past inflation as the ever-present headwind that it has presented over the past several years and focus on the solid economic and earnings growth that we have experienced and expect to continue. October started out the 4th quarter with a BLS report that showed lackluster job creation in the month of September. Chances of another rate hike in October plummeted immediately; this spurred equity markets higher and yields lower for several days. However, only equity markets were able to hold on to the pickup in pace, as bond markets fizzled on higher oil prices. Headlines continue to swirl about hostilities in Iran, and midterm elections are quickly approaching. Regardless of political persuasions, these elections are often the launching point for the strongest periods of return for equity markets. Since World War II, the S&P 500 has never declined during the 12-month period spanning from October 31 of a midterm election year to October 31 of the following year. During this period, the market has historically recorded an average gain of 16% on a price-only basis. The start of this one-year period also coincides with the 3rd quarter earnings-reporting season, which could continue to bolster markets enter year end. These earnings will be critical for the market outlook into 2027, and, combined with positive seasonal trends, should give investors something to look forward to. Data sourced from Janney's “October Investment Perspectives"
