The Setup & Where to Focus

As September draws to a close, financial markets are navigating a delicate balance of optimism and caution. On one hand, the U.S. economy continues to show resilience in consumer spending and services activity, helping GDP growth hold above trend in Q2. On the other hand, the labor market is sending increasingly mixed signals, with payrolls barely expanding, job openings sliding, and Challenger job cuts picking up. Inflation data over the past two weeks have suggested a modest cooling, but the stickiness in the shelter and services components continues to frustrate policymakers.

Markets ended last week leaning dovish: equities climbed to fresh highs, Treasury yields dropped toward the 4% mark, and gold continued to trade near record levels. Futures markets are pricing near certainty of at least one additional rate cut by the end of the year, with speculation growing around whether the Federal Reserve might opt for a larger 50-basis-point adjustment at its November or December meetings.

This week, investors face a packed calendar. Housing affordability takes center stage early, followed by the JOLTS survey, consumer confidence, and the ISM Manufacturing PMI midweek. The crescendo comes Friday with the September non-farm payrolls report, which will be pivotal in shaping market expectations for the Fed’s path forward.

Recap: What Happened Last Week

Last week’s data painted a mixed but market-friendly picture.

Growth upgraded: Q2 GDP was revised sharply higher to 3.8%, fueled by stronger consumer spending and a smaller import drag. Durable goods orders also bounced, led by aircraft, confirming resilient demand despite tighter credit.

Labor softening, not cracking: Initial jobless claims fell to 218k, the lowest since July, but Challenger job cuts rose and continuing claims stayed elevated. Together, this signals cooling momentum without outright stress.

Housing divergence: New-home sales jumped on incentives and builder financing, while existing-home sales dipped again as affordability pressures persisted. Mortgage refinancing picked up, but purchase activity remained sluggish.

Energy backdrop: The EIA reported crude and product draws, which tightened balances and supported oil prices, while natural gas inventories rose comfortably.

Fed steady: Powell and other Fed officials repeated their “data-dependent” stance, confirming that another rate cut is likely this fall but leaving the door open for flexibility.

Market reaction: Equities pushed higher, Treasuries rallied with the 10-year near 4.0%, gold surged above $3,600, and Bitcoin held above $110k. The dollar softened on expectations for easing.

The Look Ahead

Monday, September 29 – Housing & Fed Speak

• Pending Home Sales: Rose 0.1% m/m in August, defying forecasts of a decline. On a yearly basis, sales were up just 0.7%, highlighting fragile momentum. Affordability remains the main hurdle despite some relief in mortgage rates.

• Dallas Fed Manufacturing: Regional conditions improved modestly but remain in contraction territory, underscoring the nationwide softness in manufacturing.

• Fed Speeches: No fewer than five Fed officials (Waller, Hammack, Williams, Musalem, Bostic) are scheduled. Expect reinforcement of Powell’s data-dependent messaging, with nuance around labor market dynamics.

• Bill Auctions: Routine supply at the front end; no major dislocations expected.

Tuesday, September 30 – Jobs & Confidence

• JOLTS Job Openings: Fell to 7.1M, signaling a continued cooling of labor demand from the post-pandemic highs above 10M. The quit rate remained subdued, indicating declining worker leverage.

• Case-Shiller Home Prices: National prices rose 2.3% YoY, suggesting modest stabilization. FHFA’s index also ticked up, showing resilience despite high mortgage rates.

• Consumer Confidence: The Conference Board index slipped to 96 from 97.4, marking the lowest reading since early summer. Rising concerns about job losses likely weighed on sentiment.

• Chicago PMI: Dropped to 40, reinforcing weakness in regional manufacturing.

• API Crude: Reported a sizable draw, setting up bullish expectations for Wednesday’s official EIA data.

• Fed Speeches: Jefferson, Goolsbee, and Logan add further color, all expected to lean dovish but emphasize the need for inflation vigilance.

Wednesday, October 1 – Manufacturing Spotlight

• ISM Manufacturing PMI: Improved to 49.2 from 48.7, but still below the 50 expansion threshold. Prices Paid (64.5) showed sticky inflation, while Employment (43.8) stayed weak.

• ADP Employment: Just +30k, well below expectations of +54k, confirming labor softness.

• Construction Spending: Flat at –0.1% m/m, suggesting limited contribution to Q3 GDP.

• EIA Petroleum: Crude and product draws kept oil prices supported, while refinery runs remained steady.

• Treasury Auction: The 5-year note sale cleared without drama, helping stabilize mid-curve yields.

Thursday, October 2 – Claims & Orders

• Initial Claims: Rose slightly to 220k, but still near historic lows. The 4-week average edged higher to 237.5k, consistent with a gradual cooling trend.

• Challenger Job Cuts: 86k, underscoring growing corporate caution.

• Factory Orders: Rebounded +0.1% m/m after July’s steep –1.3% drop. Ex-transportation orders cooled, suggesting momentum remains uneven.

• Vehicle Sales: Surprised to the upside at 16.2M annualized, showing consumers still willing to spend with the help of incentives.

• Mortgage Rates: Freddie Mac reported the 30-year average at 6.3%, halting recent declines.

Market focus: Whether final GDP disinflation aligns with Friday’s PCE; core capital goods as a signal for business investment; claims to validate the “cooling not cracking” labor thesis.

Friday, October 3 – The Big One: Payrolls

• Nonfarm Payrolls: Rose +39k, better than August’s +22k but still far below pre-2024 norms. Private payrolls +35k, government jobs –16k.

• Unemployment Rate: Held at 4.3%, the highest since 2021.

• Wages: Average hourly earnings rose 0.3% m/m, 3.7% y/y, consistent with cooling but sticky wage inflation.

• Participation Rate: Steady at 62.3%, adding slack to the labor market.

• ISM Services PMI: Held at 52.0, showing services remain the growth anchor, though the employment subindex stayed weak.

• Rig Counts: Total rigs flat at 549; oil rigs steady at 424.

Weekly Importance Ranking:

1. Nonfarm Payrolls (Fri) – The centerpiece of the week. Confirmation of weak job creation could accelerate bets on Fed easing.

2. JOLTS Job Openings (Tue) – Critical for gauging labor demand and worker leverage.

3. ISM Manufacturing & ISM Services (Wed/Fri) – Key barometers of industrial and services activity.

4. Consumer Confidence (Tue) – Offers an updated read on household sentiment amid a softening labor market.

5. Challenger Job Cuts & Weekly Claims (Thu) – High-frequency checks on labor momentum.

6. Housing Data (Mon/Tue) – Pending home sales and Case-Shiller price indexes give insight into affordability dynamics.

7. Energy Inventories (Tue–Fri) – Still important for inflation expectations and commodity markets.

8. Fed Speeches (all week) – Could shift market tone ahead of October policy meetings.

Themes to Watch

• Fed Guidance: Powell and company remain data-dependent. Friday’s payrolls will be the deciding factor for whether cuts accelerate into year-end.

• Labor Market Cooling vs. Resilience: Payrolls and JOLTS confirm cooling, but claims remain low. Softening, not collapsing, is still the operative phrase.

• Housing Affordability: Prices stabilized, but affordability remains tight. New builds are driving gains, but existing sales stay weak.

• Manufacturing Divergence: The ISM shows stabilization, but regional surveys (Chicago, Dallas) still indicate contraction. Services continue to outperform.

• Energy & Commodities: Oil supported by draws, natural gas storage ample. Energy remains a key swing factor for inflation and spending power.

Risks & Opportunities

Risks

• Sticky Inflation: Services and shelter costs remain elevated, challenging the Fed’s disinflation narrative.

• Labor Market Deterioration: If payroll growth stalls further, consumer spending could falter.

• Fiscal Strain: Treasury auctions highlight a heavy supply pipeline, keeping long-term yields elevated.

• Geopolitical Risks: Tariff disputes, energy security, and global political tensions remain elevated.

• Seasonal Volatility: September and October are historically weak for equities; complacency could be punished.

Opportunities

• Rate-Sensitive Sectors: Banks, utilities, and homebuilders could benefit from easing policy.

• Small-Cap Rotation: Lower yields and a steeper curve favor smaller, domestically oriented firms.

• Bond Market Entry Points: Longer-dated Treasuries look increasingly attractive.

• Precious Metals: Gold and silver remain strong hedges amid fiscal uncertainty.

• Selective Commodities: Oil supply dynamics support energy equities without runaway inflation risk.

Quick Hits

• Q2 GDP revised up to 3.8%.

• Jobless claims at 220k — lowest since July.

• Payrolls improved to +39k, but still weak.

• ISM Manufacturing rose to 49.2, still indicating a contraction.

• Gold near records; Bitcoin steady at $110k.

• Fed odds: ~80% chance of another cut by year-end.

The Takeaway

The final week of September and the start of October will be dominated by the September payrolls report. The data so far confirm a gradual cooling of the labor market, sticky inflation in services, and fragile housing demand. Markets are leaning dovish, but the Fed’s path remains contingent on how quickly slack builds in the labor market and whether inflation momentum truly breaks. Investors should expect volatility as Q4 begins, with opportunities in bonds, rate-sensitive sectors, and defensive hedges like gold.