September was a tale of two markets. The Nasdaq held up, finishing the month with a modest gain of 1.86%. But the Dow had a rough go of it, falling more than 4%, and the S&P 500 slipped slightly into the red. The divergence tells you something: investors stayed interested in growth and technology while pulling back from more rate-sensitive, value-oriented areas of the market.
The defining event of the month was the Federal Reserve’s decision to raise interest rates by 25 basis points on September 16 — the first rate hike in three years. The Fed’s message was direct: inflation remains elevated, and returning to 2% is the priority. The 10-Year Treasury yield responded, climbing to 5.29% by month-end, a level that puts real pressure on borrowing costs across the economy.
Oil was volatile but finished higher, up 5.4% on the month. The Iran conflict continued to push energy prices around, and with gasoline and diesel driving a significant share of the inflation readings we saw in August, the Fed had little choice but to act. Gold moved lower, down 6.58%, as rising yields and a stronger dollar reduced its appeal as a store of value.
The VIX climbed from 14.92 to 16.34, up about 9.5% on the month. Still not alarming, but the market’s comfort level did erode as the rate hike landed and uncertainty around the inflation path remained.
On the economic data front, there was genuinely good news: Q2 GDP was revised up to 2.2%, well above earlier estimates, and the August jobs report showed 162,000 new jobs, far better than the 53,000 Wall Street had expected. The economy is not breaking down. What it is doing is absorbing higher rates, and so far, absorbing them reasonably well.
