The S&P 500 faced its largest monthly loss of 4.9% in September, marking the most significant decline since December of the previous year.

U.S. stocks mostly closed lower on Friday, with investors assessing the latest data from the Federal Reserve’s preferred inflation measure. It was the conclusion of a turbulent month for the stock market.

Here’s a snapshot of how key stock indexes performed:

For the week, the Dow fell by 1.3%, the S&P 500 declined by 0.7%, and the Nasdaq Composite managed to eke out a 0.1% gain. All three benchmarks registered monthly and quarterly losses.

What drove these market movements:

The S&P 500 wrapped up Friday with a slight decline, marking the fourth consecutive week of losses. U.S. stocks initially saw gains after the latest inflation data release.

Investors have been grappling with the question of whether the U.S. economy is heading toward a recession or a “soft landing” potentially influenced by Federal Reserve interest-rate hikes to combat inflation, according to Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Co. This uncertainty has left investors searching for answers.

The S&P 500’s 4.9% decline in September represented its worst monthly performance since December, as per FactSet data.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, mentioned that a reduction in breadth within the struggling U.S. stock market might have drawn in some “dip buyers” on Friday morning. She also noted that the inflation data from the Federal Reserve’s preferred gauge, released before the market opened on Friday, didn’t have a significant impact on stocks as there were no major surprises in the data.

The PCE (personal-consumption expenditures) index showed that core prices, excluding volatile food and energy categories, increased by 0.1% in August, which was a lower-than-expected rise. Additionally, the year-over-year inflation rate eased to 3.9%.

However, rising energy prices pushed up the headline PCE price index by 0.4% in August, marking its largest increase in seven months.

Carol Schleif, Chief Investment Officer at BMO Family Office, observed that the core PCE remains nearly double the Fed’s 2% target, prompting the Fed to consider the possibility of another interest rate hike.

Callie Cox, U.S. Investment Strategist at eToro, highlighted the decline in services inflation, which showed prices rising by 4.9% from a year earlier in August. This slowdown in services inflation aligns with the Federal Reserve’s goals as they approach the end of rate hikes.

Higher long-term yields have exerted pressure on stocks. The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) decreased by 2.4 basis points on Friday, reaching 4.572%, although it remained near 16-year highs achieved earlier in the week.

Other economic data on Friday revealed that personal income increased by 0.4% in August, along with a similar 0.4% increase in consumer spending. Signs of cooling consumer spending are emerging, particularly in the services sector.

Investors also received updates from the Chicago Business Barometer, which recorded a reading of 44.1 in September, its first drop in three months. Meanwhile, the University of Michigan consumer-sentiment index indicated a slight improvement in sentiment at the end of September, with the final reading rising to 68.1 from 67.7 earlier in the month. The University of Michigan data included a reading on inflation expectations, showing respondents anticipated inflation would decrease further to 3.2% in a year’s time.

Analysts attributed Friday’s fading stock-market gains to portfolio repositioning by funds heading into the fourth quarter, which began the following Monday. The market has experienced a risk-off environment for much of September.

Stocks to watch included:

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