Macro & Market Musings | 10/2/26

Comments based on information available as of 7:50 a.m. CT on October 2, 2026.

Growth: Taking Growth for Granted

We’re almost getting numb to economic strength where an OK, but not great jobs report sounds horrible. Nonfarm payroll employment in September rose only 29,000 and the previous two months were revised lower by 60,000. July went from negative to being revised to positive and now revised again to negative. The published numbers always sound so authoritative and precise, but they’re really neither. Regardless, the broader picture is one of an economy that is entering the fourth quarter with more momentum than it had in midsummer, but growth can’t always be taken for granted.

Inflation: Costs Aren’t Destiny

The ISM prices index, which tracks what factories pay for their inputs, jumped to 77.9 from 71.1, with survey respondents pointing to tariffs, the war, and fuel costs. That sounds alarming, but a cost increase only becomes consumer inflation if companies can pass it along, and passing it along is getting harder. Businesses have other levers to pull first, like efficiency gains, trimming expenses elsewhere, or simply accepting thinner profit margins. In fact, the Federal Reserve’s preferred inflation gauge came in cooler than expected this week, a reminder that what companies pay and what consumers pay are two different things. The tug of war between rising input costs and limited pricing power is probably doing more to keep inflation from accelerating than anything the Fed is doing.

Policy: The Volatility Machine

The Federal Reserve raised rates last month for the first time since 2023, and the odds of another hike in October have swung from under 10 percent to roughly two in three in a matter of weeks. Washington’s heavy borrowing is adding its own pressure, helping push long-term Treasury yields to levels not seen in nearly two decades. Meanwhile, factory managers surveyed by the Institute for Supply Management cited tariffs and the war as two of their biggest headaches, a reminder that trade and geopolitics set costs just as surely as central banks set rates. Each of these is a volatility machine in the short run, but history shows the noise tends to smooth out over time while the economy’s underlying direction persists. Build portfolios for that direction, not for the day-to-day jolts.

Looking Ahead: Be Careful With Fickle Multiples

Stock returns come from two sources, companies earning more or investors paying more for each dollar of earnings (the “multiple”). The multiple paid is a lot more fickle than the fundamentals. For years, low interest rates did much of the work by inflating multiples, but that tailwind has reversed. Inflation-protected Treasuries now pay nearly 2.9 percent a year above inflation, which means bonds genuinely compete with the earnings yield on stocks, the profit a dollar invested in the market buys you. When that happens, it is unrealistic to expect investors to keep paying higher and higher multiples for the same profits. The good news is that earnings have been carrying the load, and it looks like that may continue.

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