Welcome to the monthly market update from Midland Wealth Management. I’m Jake Stapleton, Research Team Lead, and today, I’ll share the Investment Team’s latest market and economic views.
September was a month of increasingly conflicting signals. Economic growth remained resilient and inflation showed signs of improvement, yet Treasury yields continued to rise, consumer confidence weakened, and beneath positive headline equity returns, market participation narrowed considerably.
GROWTH AND INFLATION
The latest inflation report provided some encouragement. Core PCE, the Fed’s preferred measure of inflation, increased 0.25% in August, slightly below expectations, while the annual rate remained near 3%. That represents progress, but inflation remains above the Fed’s 2% objective.
At the same time, economic growth continues to surprise to the upside. Second-quarter GDP grew 2.2% from a year earlier, while current estimates point toward an acceleration in the third quarter. Strong retail sales and business activity have contributed to that resilience.
For the Federal Reserve, those trends pull in different directions. Moderating inflation is encouraging, but resilient growth gives policymakers greater flexibility to maintain restrictive policy as they work to bring inflation sustainably back toward target.
INTEREST RATES AND THE FEDERAL RESERVE
That uncertainty was reflected in Treasury markets. The 2-year Treasury ended September near 4.9%, while the 10-year reached roughly 5.3%, and the 30-year approached 5.6%.
Short-term rates remain closely tied to expectations for Federal Reserve policy, while longer-term yields have faced additional pressure from economic resilience, persistent inflation, and concerns surrounding government borrowing. Together, these forces have contributed to a steeper yield curve and reinforced the possibility that interest rates could remain elevated for longer.
Fed officials themselves appear to be navigating that uncertainty. Policymakers have continued to emphasize the need for additional progress on inflation, while recent economic strength has reduced the urgency to move policy in a less restrictive direction.
THE CONSUMER
The disconnect between resilient economic data and household sentiment also became more apparent in September.
Both major measures of consumer confidence weakened during the month, continuing a broader decline from earlier this year. Elevated mortgage, auto, and credit card rates, combined with persistent price pressures, are increasingly weighing on household sentiment even as broader measures of economic activity remain relatively strong.
That divergence will be important to watch. Consumer spending remains a significant contributor to U.S. economic growth, making the durability of household demand an important consideration as higher borrowing costs work their way through the economy.
EQUITIES AND MARKET BREADTH
Similar divergences were visible across equity markets.
The Nasdaq 100 gained more than 5% during September, but the S&P 500 was up less than 1%, while small-cap stocks declined nearly 4 percent.
More importantly, market breadth weakened. Across each of these indices, more stocks declined than advanced during the month, and only about 41 percent of S&P 500 companies finished above their 200-day moving average.
The strength in headline indices, therefore, continues to mask greater weakness beneath the surface. Large-cap growth companies have continued to support index-level returns, while performance across broader markets has become considerably more uneven.
OUTLOOK
As we enter the fourth quarter, these crosscurrents remain central to the market environment. Growth remains resilient and inflation is showing incremental improvement, but higher interest rates, weaker consumer sentiment, and narrowing equity market participation provide a more mixed picture beneath the headline data.
The interaction between inflation, economic growth, and interest rates, and whether strength begins to broaden or weaken further beneath the surface, will remain important areas to watch in the months ahead.
Thank you for joining us for this month’s market update. If you would like to discuss what these developments mean for your portfolio, please reach out to your wealth advisor or relationship manager.
