The September jobs report dashed hopes for another jumbo rate cut next month

• The September jobs report was a blockbuster as unemployment fell and payroll additions surged.
• Odds that the Fed will deliver a second straight 50-basis-point cut in November plummeted.

The September jobs report offered good news all around — except to those expecting a second straight jumbo 50-basis-point rate cut from the Federal Reserve next month.

The US economy added 254,000 jobs during September, handily exceeding the consensus forecast of 147,000. In addition, the unemployment rate unexpectedly fell to 4.1%, bucking estimates that it would stay unchanged at 4.2%.

That led to an immediate repricing of rate-lowering expectations. The odds of a 50-basis-point cut dropped from 33% before the report to about 9% in a matter of minutes, according to the CME FedWatch Tool.

Analysts agree that September's blowout job numbers makes an aggressive interest rate cut harder to justify. The Fed usually lowers rates to stimulate the economy, but with a labor market going this strong, it may have to reconsider its approach.

"Did the Fed even need to cut rates in September, let alone cut by 50 basis points?" wrote Seema Shah, chief global strategist at Principal Asset Management. "The monster upside surprise suggests that the labor market may actually be a picture of strength, not weakness, and it completely dismisses the idea that the Fed could even contemplate another 50-basis-point cut in November."

Last month, deteriorating labor prints pushed the central bank to cut interest rates for the first time in three years. Wall Street has since debated what comes next. Few, however, accounted for a jobs report of this magnitude.

"Friday's jobs report was stronger than expected and that gives the Federal Reserve flexibility to either cut interest rates by 25 basis points at their next meeting on November 7, or take a pause and revisit a potential rate cut in December," wrote Glen Smith, chief investment officer at GDS Wealth Management.

Whatever the Fed chooses to do, the jobs report met the best-case scenario for stocks in the fourth quarter, according to recent research from Morgan Stanley. Late last month, the bank predicted that investors would take on more risk if the unemployment rate hit 4.1% and if payrolls reached above 150,000.

However, Smith noted that the blockbuster report only adds to a mix of factors fueling market uncertainty:

"The stock market has been living up to October's reputation of increased volatility, and we expect this choppiness to continue for the next few weeks as the market starts to navigate the uncertainty surrounding the election, the Federal Reserve's next move and corporate earnings reports," he said.