Wall Street Closes September and Q3 on a High Note

US stocks bid farewell to the month and the quarter with fresh records as investors reacted to Federal Reserve Chair Jerome Powell vowing to do what it takes to keep the economy humming, while signaling he won't rush future rate cuts.

Stocks Soar Amid Fed Assurances and Economic Resilience

A Triumphant End to a Historically Challenging Month

Typically a tough month for equities, September has turned out to be a positive one for the major US stock indexes, rounding out a solid quarter and setting the stage for the Federal Reserve's ongoing easing cycle. The Dow Jones Industrial Average (^DJI) was on track to increase 1.4% for the month and ended the quarter up 7.8%, leading the pack. The S&P 500 (^GSPC) was set to gain about 1.5% for September and just under 5% for the quarter. Meanwhile, the Nasdaq Composite (^IXIC) was poised to add 2% for the month and close to 2% for the quarter. This resilience in the face of historical headwinds has bolstered investor confidence, paving the way for a potentially bullish start to the final quarter of the year.

Powell's Reassurance and the Fed's Measured Approach

In a speech on Monday, Federal Reserve Chair Jerome Powell vowed to do whatever it takes to keep the US economy on solid footing. However, his remarks also suggested that the central bank is not on a predetermined path and is not in a rush to quickly cut interest rates further. This clarification appeared to lower expectations for another jumbo 50-basis-point rate cut, with market bets for such a move dropping to 35% from 53% a day earlier.Powell emphasized that "overall, the economy is in solid shape" and that the Fed intends to use its tools to maintain that strength. He also indicated that if the economy unfolds as expected, the central bank will gradually cut rates "over time toward a more neutral stance." This measured approach, coupled with Powell's assurances, has helped soothe investor concerns and contributed to the market's record-setting performance to close out the quarter.

The Crucial September Jobs Report and Its Implications

Investors are now bracing for the release of the September jobs report on Friday, which is seen as a crucial test for the recent market rally. The pressing question is how quickly the labor market is slowing, as the market weighs the Fed's next steps after its previous 50-basis-point rate cut.Citi's head of US equity trading strategy, Stuart Kaiser, argues that the market's reaction will hinge on the underlying reasons for the Fed's actions. If the data suggests the central bank is cutting rates because it is genuinely concerned about weakness in the labor market, then rate cuts alone may not be enough to support equities. Conversely, if the jobs report shows the economy is maintaining its resilience, it would be a "hugely bullish" outcome for stocks, as it would indicate the Fed is cutting rates amid an ideal backdrop of continuous economic growth, a solid labor market, and easing inflation.

Sector Highlights and Notable Stock Movers

During the trading session, the Real Estate (XLRE) sector rose more than 0.5% to lead the S&P 500, while the Materials (XLB) sector was the biggest laggard, falling 0.8%. Elsewhere, Nvidia (NVDA) stock slipped around 1% in early trading after falling as much as 2.8% before the market open, following a report that Beijing is urging Chinese companies to buy from chipmakers within its own borders rather than Nvidia's popular GPUs.In the automotive sector, shares of Stellantis (STLA) tumbled 14% after the company issued a stark warning about its North American operations, dragging other auto stocks lower. Cruise line Carnival (CCL) also fell 3% despite beating analyst expectations for the third quarter and raising its full-year guidance, as investors sought even stronger results.On a more positive note, Meta (META) continued to ride the optimism sparked by its recent developer conference, where it featured AI and mixed reality updates. Shares of the social media company rose nearly 1% after an analyst upgrade, with Monness, Crespi, Hardt, & Co. upping its price target from $570 to $620 on the strength of Meta's showcase and future services.