Nasdaq Closed Q3 at Record Highs While Dow Fell 2% as Oil Surged and Fed Funds Rate Hit 4%

A Split Quarter for the Big Three

The Nasdaq Composite closed out the third quarter near an all-time high of roughly 27,300, up almost 4% for the three-month stretch, according to The Epoch Times. The S&P 500 topped 7,800 for the first time before giving back some gains, finishing the quarter up around 3%. The Dow Jones Industrial Average was the outlier, down about 2% over the same period, the only major benchmark to lose ground.

Ken Mahoney, president and CEO of Mahoney Asset Management, told The Epoch Times that a handful of mega-cap names have been doing the heavy lifting, which he says is normal in a bull market but can mask weakness elsewhere. "The indexes can hide what's happening underneath," Mahoney said. He added that "when this all ends, whenever that is, it will sure be ugly," but that he doesn't see a top forming yet because too many investors are still worried about narrow market breadth.

Inflation Didn't Go Away, It Just Moved

While headline inflation looked tame on paper, the pain showed up at the pump. The Epoch Times reports West Texas Intermediate crude surged more than 30% in the third quarter, trading between $70 and $105 a barrel, with gasoline prices stuck above $4 a gallon and diesel hitting a record $6.51 a gallon. Diesel runs the trucks that move almost everything Americans buy, and rising freight costs tend to show up later in consumer prices.

The Fed's preferred inflation gauge, the PCE index, held at an annual rate of 3.4% in August, according to The Epoch Times, coming in below what economists expected. Core PCE, which strips out food and energy, sat at 3% year-over-year. Those numbers came in soft enough to support a Fed pause narrative, but the central bank's benchmark rate still sits at a target range of 3.75% to 4%, the result of rate increases The Epoch Times says investors absorbed over the summer.

Benzinga, reporting around the same window, pointed to a separate signal: the economy added just 29,000 jobs in a recent month, a weak print that Benzinga says makes a near-term Fed rate hike unlikely. Whether the Fed hikes again, holds, or cuts depends on which data point policymakers weight more heavily.

Earnings Season Arrives With High Expectations

Third-quarter earnings season is getting underway, and FactSet's average analyst estimate puts profit growth at 29.2%, which would mark a third straight quarter above 25%, according to Benzinga. That estimate has a track record of being too conservative. Second-quarter earnings growth came in above 50%, far exceeding the 28% analysts had forecast heading into that reporting period.

Goldman Sachs Asset Management, in a September 22 note from co-CIOs Alexis Deladerrière and Başak Yavuz, put adjusted S&P 500 earnings growth for the second quarter at 32% year-over-year, with more than 85% of companies beating profit expectations and roughly 70% beating revenue forecasts. The firm's framing: returns came from actual profit delivery, not from investors paying more for the same earnings, since valuations broadly contracted even as stocks rose.

Micron Technology reported record quarterly revenue of $54 billion and guided to more than $61.5 billion next quarter with gross margin rising to 86.2%, Benzinga reported. Nvidia posted $104 billion in quarterly revenue, guided to 77% annual growth, and announced an additional $150 billion share buyback. The S&P 500's forward price-to-earnings ratio sits at 19, Benzinga notes, below its five-year average of 19.5. Oppenheimer, Barclays and Goldman Sachs all cite this valuation metric in forecasts that the index could reach 8,000 by year-end. Those are forecasts, not done deals, and all three firms have a financial interest in bullish market sentiment.

Where Goldman Is Placing Bets

Goldman Sachs reinstated coverage on Baker Hughes with a buy rating this week, with analyst Neil Mehta citing margin and revenue upside from the completed Chart Industries integration, according to Traders Union. The stock is already up 23% this year. Goldman also trimmed its Disney price target to $140 from $144 even as analyst Michael Ng called the company a multi-year "earnings compounder" with a projected 13% EPS compound annual growth rate, despite shares being down 10% year-to-date. Nu Holdings carries a $23 price target ahead of mid-November earnings, with analyst Tito Labarta pointing to the fintech's push into U.S. consumer credit.

Separately, 24/7 Wall St. reports Goldman's October Conviction List overhaul added five names and dropped five, including Amazon, which the firm assigned a potential upside of 51%, the largest percentage gain among the additions.

On a Goldman Sachs podcast released October 2, sector specialist Peter Callahan said the AI trade is broadening beyond chipmakers and capital-spending beneficiaries toward companies that help businesses actually deploy AI tools and agents, a shift he frames as turning the AI trade into "a stock picker's market." He noted that of the ten largest tech stocks, roughly half rose and half fell over the summer, a dispersion that didn't exist a year earlier.

What's Still Unsettled

The open question heading into October: does diesel at $6.51 a gallon and oil near $100 a barrel eventually show up in the inflation data the way Epoch Times sources warn it might, forcing the Fed's hand on rates again? Or does the earnings strength described by GSAM and Benzinga, an 85% beat rate and 32% profit growth, keep outrunning the energy drag? Third-quarter results starting to roll in over the coming weeks will be the first real test of which narrative holds up.