Stock Market Takes a Dip at Month's End: Today's Stock Market Update

In August, the stock market showed resilience, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite posting total returns ranging from 1.8% to 3.6%. However, the positive trend didn't carry over into September, as stocks opened in the red and slid into the close in a low-volume session on Friday.

The Dow Jones Industrial Average was down 0.2%, the S&P 500 was 0.6% lower, and the Nasdaq Composite was off 1.2%. Caterpillar, a construction equipment giant, was the worst performing Dow Jones stock on Friday, sinking 3.7% due to a $1.8 billion tariff warning. Dell Technologies also took a hit, plunging 8.9% after giving weak guidance. Marvell Technology slumped 18.6% on its disappointing forecast.

Inflation indicators showed mixed signals. The Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred measure of inflation, rose 0.2% from June to July and was up 2.6% year over year. Core PCE, which excludes volatile food and energy prices, increased 0.3% monthly in July and was 2.9% higher compared to the year-ago period. Both year-ahead and long-run inflation expectations edged up from July in the University of Michigan's Consumer Sentiment Index report.

The Bundesbank expressed an opinion of "probably more upward pressure of goods inflation to come" due to continued supply chain disruptions and increased demand pressures. Greg Wilensky, head of U.S. Fixed Income at Janus Henderson Investors, also mentioned that there will be more upward pressure of goods inflation to come.

However, Wilensky stated that the tariff impacts have not flowed through to a large extent or the tariff impact will be smaller than originally expected. Oppenheimer analyst Kristen Owen echoed this sentiment, stating that the changes in Section 232 steel and aluminum tariffs announced post-earnings, as well as reciprocal rates with India, account for the bulk of the update in Caterpillar's tariff impact estimate.

Uncertainty over Caterpillar's mitigation strategy is weighing on sentiment, according to Oppenheimer analyst Kristen Owen. Caterpillar revised its tariff impact estimate for Q3 2025 to be between approximately $500 million to $600 million, and for 2025 to be approximately $1.5 to $1.8 billion.

Joanne Hsu, Surveys of Consumers Director, stated that perceptions of many aspects of the economy slipped in the report. According to Yardeni Research, the S&P 500 closed lower 53 times in September going back to 1928, and its average monthly return of -1.13% is the worst of all 12 months. Participants were grabbing profits heading into September, according to José Torres, senior economist at Interactive Brokers. He added that there's no new justification for Friday's stock market sell off except for investors dodging what's historically been the worst month for equity returns.

In conclusion, August saw a positive trend in the stock market, but September started on a downward note. Inflation indicators showed mixed signals, with both year-ahead and long-run inflation expectations edging up, but the actual inflation rate remaining relatively stable. The tariff impact on companies like Caterpillar is still uncertain, with some analysts predicting a smaller impact than originally expected.