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The September nonfarm payroll report exceeded expectations, with 254,000 jobs added versus the anticipated 150,000, marking a 6-month hiring high. The unemployment rate decreased to 4.1%, alleviating concerns about the Sahm Rule.

Wage inflation rose to 4.0% year-over-year, higher than expected. This strong data, coupled with recent hawkish signals from the Federal Reserve, likely points to a 25 basis-point rate cut at the November FOMC meeting, down from last month’s 50 basis-point reduction.

The report triggered a bond sell-off, with the 2-year and 10-year Treasury yields rising, slightly flattening the yield curve. Equities responded positively, particularly small-caps.

The data supports the view that the economy is rotating rather than heading into recession, with inflation slowing and growth stabilizing. This environment favors asset classes like value cyclicals, dividend payers, and small caps, which benefit from lower rates and steady growth.