Executive Summary
Major U.S. stock indexes finished the week mixed amid volatility in artificial intelligence (AI)-related stocks, developments in the Middle East, and sharp moves in energy prices and Treasury yields. The S&P 500 Index advanced 1.15%, while the Dow Jones Industrial Average and Nasdaq Composite added 0.93% and 0.64%, respectively. Conversely, the Russell 2000 Index declined, and the S&P MidCap 400 Index was little changed. At the sector level, consumer staples, utilities, and energy led performance, while industrials and information technology stocks declined.
Key Takeaways
1. Job growth slowed in September, although the labor market remains relatively tight. Employers added +29,000 jobs, below the average monthly gain of +45,000 over the prior year. July payrolls were revised to -10,000 and August to +133,000, reducing the two months by a combined -60,000 jobs. The unemployment rate rose +0.1% to 4.2%, while initial jobless claims remain near 200k, a very low level by historical standards. The recent data point to slower and more volatile hiring rather than a sharp increase in layoffs. Implication – The labor market has cooled, but so far, the impact has been slower hiring rather than widespread job losses.
2. Services activity remained healthy in September, while businesses continued to report significant price pressures. The ISM Services PMI ticked down from 55.4 to 54.9 but remained comfortably above the 50 level associated with expansion. New orders remained strong, while the employment index returned to expansion. The Prices Index rose to 74.0, its highest reading since July 2022. Implication – The data suggests the services side of the economy remains strong, although elevated business costs remain an important part of the inflation picture.
3. Long-term Treasury yields rose early in the week despite expectations for an October rate hike falling. The September jobs report reduced expectations for another increase at the Fed’s October meeting, with markets assigning a less than 20% probability to a hike. Despite the reduced expectations, the 10-year Treasury yield rose to 5.35%, while the 30-year yield briefly climbed above 5.70%, levels not seen since 2002. Persistent inflation concerns, rising oil prices, heavy government borrowing, and a broader global bond selloff have all pressured bonds. Stronger-than-expected government debt auctions, and President Trump’s promise to not attack Iran ahead of November’s midterm elections appeared to be supportive of prices (price up / yield down). Implication – Long-term borrowing costs are increasingly reflecting forces beyond expectations for the Fed’s next decision, helping explain why yields continue to rise even as near-term hike expectations fall.
4. Record highs in the major U.S. equity indexes continue to mask weak market breadth. The S&P 500 and Nasdaq reached new highs this week, while the Russell 2000 is nearly -9% below its August high and the equal-weight S&P 500 continues to lag its market-cap-weighted counterpart. Higher interest rates have weighed more heavily on smaller companies and other rate sensitive areas of the market, while strength among the largest technology companies has supported the headline indexes. Implication – The divergence shows that this year’s index gains have become increasingly concentrated, with the largest companies holding up better than the broader market as interest rates rise.
5. This week brings a heavy economic calendar and the start of Q3 earnings season. Investors will receive consumer inflation data for September on Wednesday, followed by producer inflation and retail sales on Thursday and industrial production on Friday. Those reports will provide updated readings on inflation, consumer spending, and manufacturing after a week that produced mixed economic signals. Next week also marks the unofficial start of Q3 earnings season, with major Wall Street banks reporting. Investors will be watching lending, credit quality, trading, and deal activity, along with what executives are seeing across businesses and consumers. Implication – Together, the economic releases and bank earnings should provide a broader look at inflation, consumer demand, credit conditions, and business activity.
Weekly Commentary
Big Banks Kick Off Earnings as AI Theme Drives Markets
Stuart Katz
Executive Summary
Major U.S. stock indexes finished the week mixed amid volatility in artificial intelligence (AI)-related stocks, developments in the Middle East, and sharp moves in energy prices and Treasury yields. The S&P 500 Index advanced 1.15%, while the Dow Jones Industrial Average and Nasdaq Composite added 0.93% and 0.64%, respectively. Conversely, the Russell 2000 Index declined, and the S&P MidCap 400 Index was little changed. At the sector level, consumer staples, utilities, and energy led performance, while industrials and information technology stocks declined.
Key Takeaways
1. Job growth slowed in September, although the labor market remains relatively tight. Employers added +29,000 jobs, below the average monthly gain of +45,000 over the prior year. July payrolls were revised to -10,000 and August to +133,000, reducing the two months by a combined -60,000 jobs. The unemployment rate rose +0.1% to 4.2%, while initial jobless claims remain near 200k, a very low level by historical standards. The recent data point to slower and more volatile hiring rather than a sharp increase in layoffs. Implication – The labor market has cooled, but so far, the impact has been slower hiring rather than widespread job losses.
2. Services activity remained healthy in September, while businesses continued to report significant price pressures. The ISM Services PMI ticked down from 55.4 to 54.9 but remained comfortably above the 50 level associated with expansion. New orders remained strong, while the employment index returned to expansion. The Prices Index rose to 74.0, its highest reading since July 2022. Implication – The data suggests the services side of the economy remains strong, although elevated business costs remain an important part of the inflation picture.
3. Long-term Treasury yields rose early in the week despite expectations for an October rate hike falling. The September jobs report reduced expectations for another increase at the Fed’s October meeting, with markets assigning a less than 20% probability to a hike. Despite the reduced expectations, the 10-year Treasury yield rose to 5.35%, while the 30-year yield briefly climbed above 5.70%, levels not seen since 2002. Persistent inflation concerns, rising oil prices, heavy government borrowing, and a broader global bond selloff have all pressured bonds. Stronger-than-expected government debt auctions, and President Trump’s promise to not attack Iran ahead of November’s midterm elections appeared to be supportive of prices (price up / yield down). Implication – Long-term borrowing costs are increasingly reflecting forces beyond expectations for the Fed’s next decision, helping explain why yields continue to rise even as near-term hike expectations fall.
4. Record highs in the major U.S. equity indexes continue to mask weak market breadth. The S&P 500 and Nasdaq reached new highs this week, while the Russell 2000 is nearly -9% below its August high and the equal-weight S&P 500 continues to lag its market-cap-weighted counterpart. Higher interest rates have weighed more heavily on smaller companies and other rate sensitive areas of the market, while strength among the largest technology companies has supported the headline indexes. Implication – The divergence shows that this year’s index gains have become increasingly concentrated, with the largest companies holding up better than the broader market as interest rates rise.
5. This week brings a heavy economic calendar and the start of Q3 earnings season. Investors will receive consumer inflation data for September on Wednesday, followed by producer inflation and retail sales on Thursday and industrial production on Friday. Those reports will provide updated readings on inflation, consumer spending, and manufacturing after a week that produced mixed economic signals. Next week also marks the unofficial start of Q3 earnings season, with major Wall Street banks reporting. Investors will be watching lending, credit quality, trading, and deal activity, along with what executives are seeing across businesses and consumers. Implication – Together, the economic releases and bank earnings should provide a broader look at inflation, consumer demand, credit conditions, and business activity.
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