Nasdaq 100 Hits Record High as Soft Payrolls Quell Rate Hike Bets: Oct. 2, 2026

Stocks are extending their October gains following September’s slightly negative performance with this morning’s softer-than-anticipated nonfarm payroll numbers quelling rate hike probabilities. Monetary-policy tightening expectations have also weakened due to an uptick in unemployment, cooling wage pressures likely driven by AI adoption, a rebounding labor force and downward revisions to prior monthly jobs reports. The odds of a Fed increase this month plunged to 20% subsequent to this morning’s notable miss, which bolstered animal spirits and propelled the Nasdaq 100 to a record high amidst the four major equity benchmarks, the 11 principal sectors and the subcategories all advancing as yields eased. The G7 provided an additional tailwind for risk assets and fixed income by announcing plans to release up to 100 million barrels of black gold and diesel, which relieved oil prices and suppressed interest rates. Indeed, West Texas Intermediate Crude has finally dropped below $90, which is contributing to a bull-flattening decent across the Treasury curve, with the longer tenors outperforming the short end. But credit is already pairing a heavy chunk of the session’s advance, and the greenback is recovering to the flatline as a result while geopolitical uncertainty and questions about the future fuel supply remain top of mind for investors. Cryptocurrencies and prediction markets are benefiting from the looser financial conditions and improving sentiment on Wall Street, while volatility protection instruments and the commodities depreciate.

US Job Additions Contract and Fall Below Expectations

The US economy added just 29k workers last month while July and August results were revised downward by a combined 60k, signaling slower hiring than previously thought. September’s headline missed the 90k economist consensus while sinking from 133k in the prior period. The slow payroll expansion pushed the unemployment rate higher, which was projected to remain steady at 4.1%. The 4.2% level was additionally driven by 485k people joining the labor force, a welcome increase that serves as the denominator in the joblessness calculation. Rising interest in gaining employment drove the participation percentage up to 61.8% from 61.6%. But greater competition from prospective employees amidst expanding AI adoption, evidenced by the automation-prone information, finance and professional/business sectors trimming rosters by a collective 26k, helped cool wage pressures. Average hourly earnings advanced a mere 0.1% month over month (m/m) and 3% year over year (y/y), 0.2% beneath forecasts on both fronts and under the 0.3% and 3.1% from the previous interval. Still, 9 of the 14 groups boosted positions albeit with no industry exceeding 20k. Private education/health services, construction and leisure/hospitality were the only three to expand payrolls by at least 10k, coming in at 20k 11k, and 10k. Meanwhile, manufacturing, transportation/warehousing, retail, wholesale trade, utilities and other services posted increases ranging from 500 to 9k. Elsewhere, government and mining staffing was down by 17k and 2k, respectively. 

Too Much Tightening Is Priced In

Labor conditions are stable overall, but today’s downward revisions signal that the US economy has lost jobs in two out of the nine months year to date, and the risk of further employment losses means that the Fed can’t hike another 100 basis points from here, which is what the curve is pricing in. The case for a steady central bank is additionally bolstered by cooling core inflation and the reality that energy is the sole generator of meaningfully higher price pressures, as non-fuel categories like housing, food, cars and medical care are countering pain at the pump. A resolution of the geopolitical conflict would quickly bring us closer to the 2% objective of monetary policy, but keep in mind that we are more likely than ever to see sinking oil charges even if Middle East tensions are complicated, as oil supply fears have been addressed by Saudi Arabia’s pipelines, US military escorts, the use of shuttle tankers through the Strait and the release of strategic petroleum reserves. Taken together, yields are poised to plunge once we wrap up the unfriendly seasonal dynamics remaining in October following September’s mild decline in stocks, and the landscape is conducive to buoyant year-end rallies for equity and fixed-income assets alike.

International Roundup

Energy Costs Pump Up Euro Headline Inflation

September price increases in the euro area accelerated at the fastest pace in three years with the y/y and m/m climbs of 3.8% and 0.6%, considerably hotter than the preceding period’s 3.2% and 0.4% results, according to the flash Harmonized Index of Consumer Prices from Eurostat. The September annualized result, furthermore, outpaced the economist consensus expectation by 0.1 percentage point. Within the headline print, the energy category was the fly in the region’s economic ointment with prices soaring 18% y/y and 3.9% m/m. When excluding this category from the HICP, the annualized and monthly inflation rates were only 2.3% and 0.2%. The core gauge, which excludes energy, food, alcohol and tobacco, was up 2.5% y/y and 0.2% m/m after climbing 2.4% and 0.2% in August. The y/y result matched the economist consensus forecast.

Returning to the headline print, the services category jumped 3.2 y/y but slipped 0.7% m/m. Other categories experienced the following price changes:

• Non-energy industrial goods, up 1.1% y/y and 2.1% m/m
• Unprocessed food, up 4% y/y and 1.3% m/m
• Processed food, alcohol and tobacco, up 0.4% y/y but down 0.2% m/m

The European Central Bank hiked its key rate 25 basis points to 2.5% in early September and Bank President Christine Lagarde warned that the ongoing US-Iran conflict could sustain higher oil prices and continue to increase costs pressures. To that end, she believes inflation will stay well above the bank’s target for an extended period of time.

Tokyo Inflation Also Heats Up

Prices for a basket of goods in Tokyo excluding fresh food and energy climbed at an accelerated pace of 3% last month, exceeding August’s print by a full percentage point, according to the Consumer Price Index. Economists anticipated an annualized result of only 2.4%. The hot result occurred as prices climbed 0.4% m/m, a considerable easing from August’s 0.7% inflation. Other variations of the gauge were also hotter than in the preceding month. The headline rate reached 2.7% y/y in September following the 1.9% jump in early September and the Core CPI, which includes energy but excludes food, was also up 2.7%. It outpaced both the economist consensus estimate of 2.4% and August’s 1.8% level. Broadly speaking, higher stickers for raw materials push up how much consumers had to dish out for food and household items. Computers also became more expensive while the termination of subsidies for water and childcare provided additional momentum to the CPI’s escalation. The hot inflation comes after the Bank of Japan last month hiked its key interest last month from 1% to 1.25%, the loftiest level in 31 years.  In doing so, the organization was preemptively seeking to prevent the Core CPI from climbing about its 2% target. The Tokyo index is considered a leading indicator for the overall country CPI. As such, today’s print is supporting the likelihood that the central bank will continue to hike its key interest rate. While the outlook for tightening at the organization’s Oct. 29 and 30 meeting has fallen, investors increasingly anticipate that policymakers will hike in December.

And Japan Unemployment Rate Climbs Marginally

Japan’s unemployment rate climbed from 2.4% in July to 2.5% last month and surpassed the economist consensus for the metric to remain unchanged. The Japan Ministry of Internal Affairs and Communications reported that payrolls added 30,000 workers in August, bringing the total number of employees to 68.3 million. The number of individuals who voluntarily left employment climbed 8% m/m to 810,00 while the pool of fired individuals climbed 5.3% to 400,000. The manufacturing sector increased staffing by 3.9% while the workforce for the information and communications segment expanded by 3.3%. The accommodation and restaurant services industry, conversely, reduced its headcount by 11.1%. More broadly, 8 of the country’s 11 sectors experienced dips in individuals punching timeclocks.