Stocks closed lower yesterday, but off their session lows.

Crude oil fell by roughly -4%.

Indirect talks continue between the U.S. and Iran.

In spite of the ongoing tension, and traffic disruption in the Strait of Hormuz, Middle East crude exports rose to 16.3M barrels per day, which is the highest since the war began.

In other news, Treasury yields only ticked up 2 basis points yesterday.

With the Fed Funds Rate (FFR) at 3.88% midpoint, and the 10-yr yield at 5.26%, the spread is 138 bps. Historically, over the past 40 years (1985-2025), the spread between the FFR and the 10-yr, has been 100 to 150 bps. The median is 120 bps.

With one more rate hike expected this year (the Fed is forecasting a 4.1% FFR by year's end, and for 2027), that would put the spread at 116 with the current yield, which is right in line with the historical norm.

The point is, I'm not expecting the 10-yr to rise forever. Nor am I expecting the FFR to shoot up much more than expected either. The rise in yields, in my opinion, is simply a reversion to the long-run median spread of 120 bps.

The main event today will be this morning's Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge). The headline rate is expected to be up 0.4% m/m vs. last month's 0.2% pace. The y/y rate is forecast at 3.7%, in line with last month. The core rate (ex-food & energy) is estimated to be up 0.3% m/m vs. last month's 0.2%, while the y/y rate is pegged at 3.3%, also in line with last month.

We'll also get the third and final estimate for Q2 GDP, which is expected to come in at 1.5%, unchanged from last month's estimate.

But that's old news. The market is looking ahead. And the latest GDPNow forecast from the Federal Reserve Bank of Atlanta puts Q3'26 GDP at 5.0%, which would be the fastest pace since Q2'21.

After today, the next big economic report will be Friday's Employment Situation Report by the Bureau of Labor Statistics (BLS).

Tomorrow will mark the beginning of Q4. And that's great news since Q4 is historically the best quarter of the year for stocks. Since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%.

Then two weeks later comes the start of Q3 earnings season. More great news since stocks typically go up during earnings season.

And both of those bode well for more gains to come.

Today is the last day of September. As you know, September has a history of being a tougher month. But with one more day to go, the S&P is only down two-tenths of a percent. And a little bit of good news today could erase that and put stocks in the green for the month, just like the green arrows seen last September and the year before.

See you tomorrow,