Stocks Defy Seasonal Slump as Fed Signals Measured Approach

US stocks wavered on Monday but were still set for strong monthly and quarterly gains 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.

Resilient Markets Shrug Off Typical September Slump

Stocks Poised for Solid Quarterly and Monthly Gains

Despite the typical challenges of September, the major US stock indexes are on track to deliver robust monthly and quarterly returns. The Dow Jones Industrial Average (^DJI) is set to increase 1.4% for the month and end the quarter up 7.8%, leading the pack. The S&P 500 (^GSPC) is poised to gain about 1.5% for September and just under 5% for the quarter. Meanwhile, the Nasdaq Composite (^IXIC) is set to add 2% for the month and close to 2% for the quarter.The resilience of the markets can be attributed to the Federal Reserve's jumbo interest rate cut and signs of strength in the US economy, which have lifted investor confidence and helped stocks post three consecutive weekly gains. However, the final trading day of the month and the quarter also brought some profit-taking and rebalancing activity.

Powell's Measured Approach Tempers Expectations for Further Aggressive Cuts

In a speech on Monday, Federal Reserve Chair Jerome Powell struck a measured tone, vowing to use the central bank's tools to keep the economy in solid shape, but signaling that he is in no rush to rush into another round of aggressive rate cuts.Powell's comments lowered expectations for another jumbo 50-basis-point rate cut, with market bets for such a move dropping to 35% on Monday afternoon, compared to 53% a day earlier. The Fed chair emphasized that the central bank is not on a predetermined path and is not looking to quickly cut rates, stating, "This is not a committee that wants to cut rates quickly."Investors are now closely watching for the September jobs report, due out on Friday, which will be a crucial test for the recent market rally. The key question is how quickly the labor market is slowing, as the market weighs whether the Fed has acted aggressively to protect a healthy economy or to help a flailing one.

Automakers Struggle Amid Supply Chain Woes and China Weakness

The mood in the markets was clouded by a growing pile of profit warnings from automakers. Stellantis (STLA, STLAM.MI), the parent company of Chrysler, tumbled 13% after slashing its margin outlook, citing supply chain disruption and weakness in China. General Motors (GM) and Ford (F) also fell around 4% in tandem.The troubles in the auto sector were not limited to North America, as luxury carmaker Aston Martin (AML.L, ARGGY) also warned on earnings, sending its shares plunging more than 20%.

Global Markets Present a Mixed Picture

While the US markets were navigating a relatively subdued session, the global landscape presented a more varied picture. In China, the benchmark stock index (000300.SS) posted its biggest gain since 2008, entering a bull market, as buyers rushed in ahead of a weeklong holiday.However, in Japan, the Nikkei 225 (^N225) tumbled as a surprise vote wrong-footed investors betting on an easing-friendly prime minister.

Investors Brace for Key Economic Data

As the markets look ahead, a slew of labor market data, including the crucial September jobs report, will be in focus for investors this week. Updates on activity in the services and manufacturing sectors will also catch attention as market participants attempt to discern how quickly the US economy is slowing.Analysts argue that the nature of the economic data will be crucial in determining the market's reaction. A stronger-than-expected jobs report, for instance, would likely be seen as a positive for stocks, as it would suggest the Fed's actions have been aimed at maintaining a healthy economy rather than addressing a flailing one.Conversely, a weaker jobs report could raise concerns about the underlying strength of the labor market, potentially dampening the bullish sentiment that has prevailed in recent weeks. Investors will be closely watching the data to gauge the trajectory of the economy and the Fed's policy response.