THIS WEEK IN REVIEW:
October 4-10, 2026 Why markets climbed last week (and what the Fed does next)

Yields and oil cool long enough for markets to set new records

With all that’s going on, who would have thought we’d see new records in the S&P 500 and Nasdaq? That’s exactly what happened last Tuesday. If you listened to the pundits, the sky was about to fall. Maybe it still will, but as usual hypothesis and reality (via actual events) take their own paths. The S&P 500 topped 7,800 for the first time and closed at 7,818.93 on Tuesday. And the Nasdaq, despite all the pearl clutching around AI spending and data center construction, recorded a new record high just below 27,400. Plus, the Dow isn’t far from the record it set in early August, closing out the week at 51,654.

What gives? Corporate earnings are pushing markets up. We’re about to embark on another earnings season, and it’s looking like earnings will probably be up by at least 25% for the third quarter in a row this year.

Sure, people are grumpy and complaining about affordability, mortgage rates and the price of real estate — yet consumers continue to spend money, which translates into higher earnings for companies. If things were as bad as we’re constantly being told they are, why are earnings so strong? Markets are optimistic and forward-looking by nature, and they’re telling us that energy prices and inflation will decline and the economy will get stronger. That’s why markets hovered near all-time highs even as oil prices, treasury yields and mortgage rates rose and the Fed hiked rates.

Any little bit of euphoria is apt to push us to a record close. That’s what happened when yields pulled back on Tuesday. After a brief scare around the price of oil, new threats against Iran from President Trump and some AI profitability jitters, markets rebounded and the S&P closed the week up over 1% and with a year-to-date return of over 14%.

Has anything changed? Not really. This type of market action should only solidify the reason one has a plan in place and follows that plan, maintaining discipline when temptation or uncertainty creep into our daily financial lives.

When days are good, the market seems to forget about our massive debt and chronic deficit. But when yields rise and inflation rears its ugly head, the markets suddenly seem to care. This will be something we’ll continue to contend with, and that’s why we have a plan and stick to it. Ups and downs in the markets are as normal as breathing. Just remember there have historically been more ups than downs, and we should all be fine in the end.

Next Fed hike not likely until December

After the most recent jobs report, it’s highly likely an October rate hike is off the table. The Fed minutes from the September meeting released last Wednesday showed a desire to continue raising rates but did not give a specific path as to the magnitude or timing of those increases. That’s a fancy way to say the Fed was leaning toward raising rates but weren’t committing to how much and when.

Just as well, because the jobs report last week pushed the potential October rate hike to the December meeting. It would have been problematic to move rates the month before an election, although that’s not an airtight rule. The Fed has the ability to avoid appearing political prior to an election, and the latest employment numbers warrants a pause to see if jobs are really weak or if this report was an anomaly.

The economy isn’t overheated thanks to higher oil prices creating a drag, but earnings are still very good and companies appear to be handling higher oil prices and inflation pretty well as we head for a third consecutive quarter of 25% (or more) growth year over year. That’s huge, especially given that last quarter we grew at nearly 50% year over year.

The recent jobs picture has been uneven at best. With the economy and company earnings in good shape, until we see companies pulling back because profits are challenged and/or people quit spending because they’re worried about their jobs, the Fed can hold back. That can’t last indefinitely, however, and we will need to see inflation come down. If we don’t, that will put pressure on the Fed.

All of this, along with the lack of transparency from Fed Chair Kevin Warsh, makes the possibility that the next rate hike will likely come in December at the earliest. That’s two full months from now — and two months in the markets can be an eternity.