Surviving September. The stock market fell on Wednesday, with the exception of the tech sector.

The S&P 500 dropped 0.3%. The Dow Jones Industrial Average lost 0.9%, or 441 points. The tech-dominated Nasdaq Composite added 0.2%.

The S&P 500 spent most of the day in the green, lifted by new softer-than-expected inflation data. August's core personal consumption expenditures index $(CPE)$ rose 0.2% compared to the month prior, according to data released Wednesday morning. Headline PCE rose 0.3%. Both measures were lower than expected, boosting equities for several hours.

That bump didn't last through the end of the day though, and the S&P moved lower just ahead of the close. The dip erased what could have been a narrow gain for the index this month. Instead, it fell nearly 0.5% in September. The Dow fell 4.3% this month.

It's hard to imagine historically high bond yields didn't have a hand in today's losses. The 10-year yield was near 5.3% on Wednesday after recording its largest quarterly gain since 1994.

But September has been a month of contradictory forces at play in the stock market, and bond yield rises were tempered by falling odds that the Fed will hike interest rates in October. The market now prices in the central bank holding rates steady on Oct. 28 at 63%, according to the CME FedWatch tool. Yesterday the odds of a pause or a hike were basically a coin toss. That helped the Nasdaq Composite end September up 1.9%.

"Stocks weathered seasonal headwinds amid a surge in yields this month, as healthy economic data continued to signal a buoyant corporate earnings outlook, leaving investors satisfied with current valuations," writes José Torres, senior economist at Interactive Brokers.

With a Fed rate hike in October looking less likely, strong economic growth, and a solid labor market, stocks have good reasons to move higher.

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The Hot Stock: Gen Digital Inc. +5.6% The Biggest Loser: Jabil -10%

Best Sector: Information Technology +0.6% Worst Sector: Consumer Staples -1.7%

Hello October

The stock market has officially survived September, which tends to be its worst month. Now it's looking forward to what has traditionally been its best.

October is historically Wall Street's standout month in midterm election years; the S&P 500 has averaged a 3% rise, according to Dow Jones Market Data going back to 1950. November isn't far behind, with an average bump of 2.7%, followed by 0.8% in December.

With those stats in mind, it's no surprise investors are looking forward to the fourth quarter. The S&P 500 has an average return of 6.6% in Q4 during midterm years, while the average in non-midterm years is around 3.4%.

"We will be the first to admit you should never invest solely based on the calendar. Still, it's important to understand history, and the good news for investors is some of the best times of the year to invest historically are near," writes Carson Group Chief Market Strategist Ryan Detrick.

It's worth noting that when October is bad, it's really bad. In 1929, 1932, 1937, 1987, and 2008, October saw double-digit declines in the S&P 500. Notably, none of those were midterm election years. For those keeping score at home, these dates correspond to the Great Crash, Black Monday, and the Global Financial Crisis.

Not every fourth quarter is an investing success story, either. That period has seen positive returns in 16 out of the 19 midterm years since 1950, but there are brutal exceptions. In 2018, the S&P 500 dropped 14%.

The reasons for investors to be optimistic heading into the fourth quarter this year, though, extend beyond historic trends. Deutsche Bank's global equity strategists say they're "still constructive" on stocks for the rest of 2026. They called out what's arguably the most important catalyst to watch: earnings.

"The last 2 reporting seasons saw the market rangebound going in, only to rally sharply (+3%) as companies reported," Deutsche Bank strategists wrote. "Equities have been following the script as we approach Q3 earnings where we look for around 30% growth."

Time will tell if earnings, combined with seasonal support, will send the market to new highs by the new year.

The Calendar

Accenture , McCormick , and Nike announce quarterly results tomorrow.

The Institute for Supply Management releases its Manufacturing Purchasing Managers' Index for September. Consensus estimate is for a 55 reading, about half a point more than in August. The index has been above 50 every month this year, indicating expansion in the manufacturing sector, after just one reading higher than 50 in the previous three years.

- Dan Lam

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