The major U.S. stock indexes alternated between small daily gains and losses before staging a modest rally on Friday to end with fractional gains for the week. It was enough to push the S&P 500 and the Dow just above the record highs they set the previous week, while the NASDAQ ended just 2.7% below the record high that it set three months ago.

After a strong first three quarters of the year, with the S&P 500 up over 20%, stock markets began the fourth quarter on a volatile note. This was in large part because of elevated uncertainty around four areas: The U.S. labor market, port strikes on the East Coast, tensions in the Middle East, and the U.S. presidential election. However, over the course of the week, the markets found some relief. The U.S. nonfarm-jobs report surprised nicely to the upside, while the East Coast port strike reached a tentative resolution. Although ongoing geopolitical and political uncertainties remain, the fundamentals of the economy also continue be solid. The Fed is poised to lower interest rates through 2025, inflation continues to gradually moderate, and economic growth, while cooling, remains positive.

The labor-market data was perhaps the biggest upside surprise for the markets this past week. The U.S. nonfarm-jobs report for September indicated that not only did jobs added well-exceed expectations, coming in at 254,000 versus forecasts of 150,000, the unemployment rate also ticked lower, from 4.2% to 4.1%. Last month's total jobs added was also revised higher, from 142,000 to 159,000.

After two months of weaker-than-expected labor reports and downward revisions, this month's data was a welcome shift in tone for markets. The labor market is likely normalizing after a period of outsized strength in the post-pandemic period. There is more supply of labor, as new entrants come in and workers return to the workforce, and there is marginally less demand for labor, as job openings have trended lower all year. Perhaps one of the biggest implications of this strong labor report is the potential impact on Federal Reserve rate cuts. After the labor-report data was released, markets reacted, pushing Treasury bond yields higher and pricing in rate cuts of 0.25% rather than 0.5% for either the November or December meeting this year.

As major U.S. banks prepare to open quarterly earnings season on Friday, October 11, analysts expect that third-quarter earnings per share for companies in the S&P 500 rose by an average of 4.2% compared to a year ago, according to FactSet. Such an outcome would mark the fifth consecutive quarter of year-over-year earnings growth.

On the heels of the U.S. Federal Reserve’s recent interest-rate cut, a Consumer Price Index report scheduled for release on Thursday will show whether the recent cooling trend for inflation extended into September. The most recent CPI report covering August showed an annual rate of 2.5%, down from July’s 2.9% figure and the lowest since February 2021. The current consensus estimate is calling for 2.3% year-over-year.