On the last trading day of September, fresh US economic data showed inflation easing last month.

The S&P 500 shed 0.25% on Wednesday, giving back earlier gains that had seen it rise nearly 0.7% during the session. The Nasdaq added 0.24%. The Dow dropped 0.9%, or 441 points. The August personal consumption expenditures price index rose 3.4% year-over-year, down from 3.7% the prior month. Economists surveyed by Dow Jones had expected inflation to hold steady at 3.7%. More encouragingly, core PCE, which excludes food and energy, rose 3% year-over-year, below the prior month's 3.3% and under economists' expectations.

Among the "Magnificent Seven": Alphabet gained 1.01%, Nvidia rose 0.51%, Apple climbed 1.10%, Microsoft added 0.77%, Amazon advanced 1.01%, Tesla rose 0.56%, while Meta Platforms fell 1.84%.

Driven by the cooling inflation data, the 10-year Treasury yield pulled back from its highest level since 2007, last reported at 5.23%. The 30-year Treasury yield also retreated from its peak not seen since June 2002.

Throughout September, elevated yields kept pressure on stocks; as of Tuesday, the S&P 500 had slipped 0.2% for the month. Rising borrowing costs have been one of investors' biggest concerns, as sovereign bond yields serve as a crucial pricing anchor for global markets — a key reference not only for investors allocating to higher-risk equities but also a benchmark for mortgage and corporate financing costs. Carlo Franchini, head of institutional clients at Banca Ifigest in Milan, said: "We've reached a truly significant yield level. The temptation for investors to rotate from stocks into bonds could become a problem." However, Franchini said he has not yet taken profits on equities. He believes that if tensions around the Strait of Hormuz ease, pulling oil prices lower and relieving pressure on bond yields, stocks could still find support in October. "In my view, it's better to stay long," he said.

This week, 10-year government bond yields in Germany and France rose to 17-year and 18-year highs, respectively, and are on track for quarterly gains of about 70 basis points and 120 basis points. In Japan, the 10-year yield hovered near multi-decade highs, with a quarterly increase of 38 basis points.

Despite the sharp rise in sovereign borrowing costs this quarter, global equities have generally shown strong resilience. On Wednesday, market expectations for a Federal Reserve rate hike cooled somewhat. CME Group's FedWatch tool showed traders pricing in a 47% probability of a 25-basis-point hike next month, down from 51% the previous day. Even with the favorable inflation data, traders still expect another hike in December. Adam Hetts, global head of multi-asset and portfolio manager at Janus Henderson Investors, said in a statement: "Despite today's better-than-expected inflation data, with employment and GDP data running strong, this report is unlikely to change the widespread market expectation that the Fed will hike again before year-end."

ADP private-sector employment data offset the inflation-driven optimism, with the ADP report showing 90,000 jobs added in September, well above the 68,000 consensus estimate. Wednesday marked both the final day of September and the close of the third quarter. Market performance diverged across monthly and quarterly measures. On a monthly basis, the S&P 500 and Dow posted losses, while the Nasdaq gained over 1%. On a quarterly basis, the S&P 500 and Nasdaq rose 2%, while the Dow fell nearly 2%.