What we learned last week:
“Can you take me higher? To a place where blind men see. Can you take me higher? To a place with golden streets.” – Creed. “Higher”, 1999
Major US stock indexes look past rising interest rates to end the week higher. The Dow industrials snapped three weeks of declines, and the S&P 500 snapped a two-week slide, while the tech-heavy Nasdaq finished in the green for a second consecutive week.
Once again, the tech sector does heavy lifting, elevating all major indexes higher one hitting new record highs.
Shares of technology companies boosted the Nasdaq Composite to a new intraday record high and all-time closing high on Tuesday. The move higher came before the U.S.-China summit on Thursday, with traders hoping the trade truce with Beijing could be extended and talks would result in news with AI regulation.
The highly anticipated state visit by Chinese leader Xi Jinping was his first formal trip to Washington in 11 years. As a result of the meeting, the U.S. and China agreed to an extension of their trade truce until Jan. 10. Notably missing was any substantive policy progress. Specifically addressing AI threats and the Iran War. President Trump says he will meet Xi in China in November.
In a welcomed change, oil prices fell with reports that Iran said it could reopen the Strait of Hormuz. Brent crude futures, the international benchmark for the price of oil, fell below $100 a barrel. Iran has offered to reopen the Strait of Hormuz within seven days if the US lifts its naval blockade, removes sanctions on oil sales and reinstates a ceasefire – terms the US will likely decline.
The summer was marked by rising oil prices and treasury yields. While last week summer officially came to an end and gave some reprieve to oil prices, rising treasury yields took no such break.
Two events on Wednesday caught the attention of the bond market.
First, the Purchasing manager’s indexes (PMI) reported strong-than-expected surveys on U.S. economic activity – especially in the manufacturing sector. Followed by a treasury auction with lackluster demand.
These events fueled interest rates higher with the yield on five-year US Treasury notes moving above 5% on Wednesday, notching its highest level since 2007. Further up the maturity line, the ten-year Treasury yield jumped more than 14 basis points to over 5.116%, notching a level not seen since July 2007. The hotter than expected economic activity raises concerns over inflation and the likelihood of the Fed raising rates.
Bond prices continued their decline (yield rising) the rest of the week, driving yields to multi-decade highs. The 10-year U.S. Treasury note hit an intraday peak of 5.225% Friday, its highest level since July 2007. The 30-year Treasury yield broke above 5.50%, its highest level since June 2005.
Stocks can’t ignore rising yields forever, this week may play a pivotal role as key monthly labor market and inflation data reports will be published. Investors will be looking for indications of hotter or softer inflation. The AI growth story will also be tested this week. Micron, who provides highly in demand memory chips which help provide speed to the AI model workload, reports quarterly earnings after market hours on Wednesday.
What’s ahead this week:
Economic Events
- Investors will have inflation and labor market data to digest this week
- Wednesday’s Personal Consumption Expenditures Price index (PCE) for the month of August will give investors some insight into the impact of higher energy prices
- Friday’s Unemployment Report for September will come after better-than-expected growth from the prior months report
Earnings
- The biggest earnings event will be memory chip maker Micron. Micron has benefited from the supply shortage in memory chips as AI models race to make faster, cheaper, better AI models.
- Packaged food distributor Conagra may provide insight into food inflation
- Consumer retailor Nike has produced disappointing results for pre-and-post operational turnaround reports quarterly earnings this week
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
