The S&P 500 pulled back from its record high. The Dow fell 334 points. And at 2 p.m., the Fed released the minutes from its September meeting. The message was plain: the committee expects to raise rates again before the end of the year. The market is pricing a 17% chance of that happening in October. One of those numbers is going to change fast.
The Close
Down day. The S&P 500 fell 0.22% to 7,801.56, giving back a piece of Tuesday's record close. The Dow dropped 334 points, or 0.65%, to 51,187. The Nasdaq slipped 0.28% to 27,520. All three indexes pulled back from record territory.
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| S&P 500 | 7,801.56 | −0.22% | ||
| 10-Yr Yield | 5.35% | +11 bps | ||
| Dow Jones | 51,187 | −334 pts | ||
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| Energy | +0.8% | |||
| Utilities | +0.5% | |||
| Consumer Staples | +0.3% | |||
| Materials | +0.1% | |||
| Industrials | 0.0% | |||
| Financials | −0.3% | |||
| Real Estate | −0.4% | |||
| Comm Services | −0.5% | |||
| Technology | −0.5% | |||
| Consumer Disc | −0.7% | |||
| Health Care | −0.8% | |||
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Energy was the only sector with any real life today as oil pushed higher. Tech and consumer discretionary gave back some of yesterday's gains. Health care continued its slide. The day-after-record pullback was orderly — no panic, just profit-taking and a wait for the 2 p.m. minutes.
The gainers were all power and nuclear names. Penguin Solutions jumped 13.6%. Vistra surged 10.8%. Black Hills — NorthWestern Energy's merger partner — gained 9.9% on the Google data center deal. Centrus Energy rose 8.8%. The AI-needs-power trade had its biggest day yet.
The losers were scattered. Webull fell 19.1%. Hess Midstream dropped 14.6%. IES Holdings lost 9.7%. Energy Fuels gave back 8.9%. The damage was concentrated in smaller names and rate-sensitive industrials.
What The Market Is Pricing In
At 2 p.m. today, the Fed released the minutes from the September meeting — the one where they hiked rates. The headline: the committee expects to raise rates again before the year is out.
That's not a hint. That's not "we're data dependent" or "the path remains uncertain." The minutes said the committee expects persistently higher prices and a stable labor market to justify a second hike this year. Chairman Warsh took a more hawkish tone than the market expected.
And yet the futures market is pricing just a 17% chance of a hike at the October meeting. Three weeks ago, before the weak jobs report, that number was closer to 40%. The soft payrolls number on Friday — 29,000 vs. 89,000 expected — talked the market out of an October hike. But the Fed's own words suggest they weren't talked out of anything.
There's a concept on Wall Street for when the market and the Fed are saying different things. When traders are positioned one way and the central bank is leaning the other, the gap between the two creates a spring. The longer it builds, the sharper the snap when one side gives. They call it a positioning squeeze — and the setup right now is textbook.
The Fed just told the market it plans to hike again, and the market is betting 83% that it won't. That's the widest gap between Fed guidance and market pricing since early 2023. Either the Fed blinks — unlikely with ISM prices at 77.9 and oil above $90 — or the market reprices fast and yields jump. The snap could come as early as the October meeting.
The market is pricing in a Fed that pauses. The Fed is telling you it won't. If the PepsiCo earnings tomorrow show pricing power holding and the Michigan sentiment on Friday shows inflation expectations climbing, the 17% hike probability starts moving toward 50%. And the 10-year goes with it.
I saw a version of this in September 2022. The Fed was clearly signaling 75-basis-point hikes, and the market kept expecting them to pivot. The market was wrong for three straight meetings. The stocks that got hurt worst were the ones positioned for cuts that never came. Rate-sensitive names — small caps, banks, real estate — took the heaviest damage.
What's Next
Three things I'm watching this week:
01 — Weekly jobless claims — Thursday, October 8 at 8:30 a.m. ET
Last week's 197,000 was the lowest since July. Friday's payroll number was 29,000. Those two numbers are telling different stories about the labor market. If claims stay below 200,000 again, it confirms the labor market is tighter than the payroll miss suggested — and gives the Fed more room to hike.
02 — Levi Strauss earnings — Thursday, October 8 after the close
Levi reports after the bell. It's a direct window into whether consumers are still spending on discretionary goods or starting to pull back. After Nike's weak report last week, Levi will tell you if that was one company's problem or a broader consumer downshift.
03 — September CPI — Tuesday, October 13 at 8:30 a.m. ET
The next major inflation print arrives Tuesday morning. After the ISM prices-paid spikes in both manufacturing and services, the CPI will show whether those higher input costs are reaching the checkout line. A hot number — above 0.3% month over month on the core — would push that 17% hike probability much higher, fast.
The Fed told you today another hike is coming. The CPI next week will tell you how soon.
That's it for today. See you tomorrow after the close.
