S&P 500 down 0.3%; Nasdaq 100 up 0.7%
Long-end yields reach a 2002 high as weak payrolls lower October hike expectations

The 10-year Treasury yield touched 5.34% intraday on Thursday, above the 2007 peak and the highest since 2002; the 30-year yield reached 5.61%, a 24-year high. On FRED closing data through October 1, the 10-year yield rose 7 basis points on the week to 5.24% and the 30-year 12 basis points, while the 2-year yield declined 3 basis points to 4.78%. The 10-year/2-year spread widened 9 basis points to 0.45 percentage point. The 10-year closed at about 5.28% in Friday trading.

By component, the 10-year real yield rose 5 basis points to 2.88% and breakeven inflation 2 basis points to 2.36%, so real yields continued to account for most of the increase. The move was part of a global sell-off in government bonds: the UK 30-year gilt yield rose above 6% for the first time since 1998, the French 10-year yield reached its highest since 2002 and the Japanese 10-year yield its highest since the mid-1990s. Reports cited higher oil prices linked to the Middle East conflict, government financing needs and capital demand from AI infrastructure investment. The ISM manufacturing prices-paid index rose from 71.1 to 77.9 in September, adding to inflation concerns.

Bond market volatility rose markedly alongside long-end yields: the MOVE index increased 11.3 points to 107.3 and reached 110.5 on Wednesday, while the VIX rose only 0.44 to 15.3. High-yield spreads widened 31 basis points to 3.24%, a second consecutive weekly increase.

The Bureau of Labor Statistics reported on Friday that nonfarm payrolls rose 29,000 in September, below the Dow Jones consensus of 84,000. The unemployment rate increased from 4.1% to 4.2%, and average hourly earnings rose 0.1% on the month and 3.0% on the year, below CPI inflation of 3.4%. July and August were revised down by a combined 60,000, with July revised from a gain of 21,000 to a loss of 10,000.

The 10-year yield initially fell about 6 basis points to 5.18% after the release before recovering. The futures-implied probability of an October rate increase fell from about 51% on September 29 to about 17% (CME FedWatch; Friday quotes ranged from 17% to 25%), although markets continue to assign a high probability to a December increase. The Fed raised its policy rate by 25 basis points to 3.75%–4.00% on September 16; the next meeting is on October 27–28. Michael Feroli, chief US economist at JPMorgan, said it would now take a very strong CPI reading to make the October meeting live.

Other data this week were mixed. The August PCE price index rose 3.4% year on year and core PCE 3.0%, both lower than in the prior month, while the Conference Board consumer confidence index fell from 89.4 to 81.9 in September. Equities responded positively to the payrolls data: on Friday the S&P 500 rose 0.73%, the Nasdaq Composite 1.19% and the Russell 2000 0.94%, which did not fully offset the declines from Monday to Wednesday.

The S&P 500 declined 0.3% this week and the Dow 1.3%, while the Nasdaq 100 rose 0.7%. The equal-weight S&P 500 fell 0.7% and 8 of the 11 sectors were lower, while the semiconductor ETF (SMH) and the software ETF (IGV) rose 4.0% and 2.3%, respectively.

Semiconductor performance was led by Nvidia and Micron. Micron reported fiscal fourth-quarter revenue of $54.23 billion and adjusted EPS of $33.42 on September 30, both above estimates, and guided next-quarter revenue above consensus. Nvidia's board added $150 billion to its share repurchase authorization, and the stock reached $237.88 intraday on Friday, its first record since May, for a market value of about $5.7 trillion; Nvidia rose 3.9% on the week.

Performance among megacaps diverged: Amazon rose 0.7% and Microsoft 0.3%, while Apple fell 2.2% and Meta 3.1%. Apple's decline followed a Bank of America note that AI agents, including Meta's Muse, could divert online spending away from its ecosystem. Tesla reported third-quarter deliveries of 486,532 vehicles on Friday, above the consensus of about 464,000; the shares rose about 5% on the day, narrowing the weekly decline to 0.4%.

Only technology (+1.8%), energy (+1.3%) and utilities (+0.8%) advanced among the 11 sectors, while health care (-2.6%), financials (-2.5%) and communication services (-2.3%) declined the most, a spread of 4.5 percentage points between the strongest and weakest sectors. Friday's broad rebound narrowed the weekly declines in industrials (-0.3%) and consumer discretionary (-0.5%). By style, growth rose 0.6%, value fell 1.0%, momentum rose 1.4% and low volatility fell 0.1%; among thematic ETFs, semiconductors rose 4.0% and software 2.3%. At the index level, the cap-weighted Nasdaq 100 rose 0.7% and the equal-weight S&P 500 fell 0.7%, indicating that market breadth remained narrow, as in the previous week.

On FRED data through October 1, the 2-year yield fell 3 basis points to 4.78%, the 10-year rose 7 basis points to 5.24% and the 30-year 12 basis points to 5.61%, a bear steepening; the 10-year/2-year spread widened to 0.45 percentage point (October 2). Friday market quotes put the 2-year and 10-year yields at about 4.84% and 5.28%, respectively, so the curve also steepened relative to the previous Friday. The front end responded modestly to the employment data and policy expectations, while the long end was driven by a higher term premium (inference).

In credit, high-yield spreads widened 31 basis points to 3.24% and investment-grade spreads 5 basis points to 0.86%. The MOVE index rose to 107.3 and the VIX stood at 15.3; the US Dollar Index rose 0.96 to 101.9. The effective fed funds rate remained at 3.88%.

Higher real yields and a stronger dollar weighed on precious metals: gold fell 3.7% to $4,162 per ounce, its second consecutive weekly decline, silver 6.6% and copper 3.0%. Oil declined modestly. Prices rose on Monday after the US rejected an Iranian peace proposal; on Friday the G7 announced a release of up to 100 million barrels of crude and diesel over four months, coordinated through the IEA. WTI fell 1.4% on the week to $91.11 and Brent 2.0% to $102.25. The US Dollar Index rose 0.96, EUR/USD fell 1.0% and USD/JPY fell 0.6%. Abroad, the Nikkei 225 rose 2.9%, the Euro Stoxx 50 fell 1.0% and the Hang Seng 2.2% (closed on October 1); the Shanghai Composite, which traded only through September 30 ahead of the National Day holiday, fell 1.2%. Bitcoin was little changed and Ether fell 0.7%.

Nvidia rose 3.9% this week, outperforming the S&P 500 by 4.2 percentage points, the best performer among covered stocks, and set a record high on Friday; our rating is Buy. Microsoft rose 0.3% (Neutral). Apple fell 2.2%, and Tesla, which rebounded on Friday after its delivery report, fell 0.4% on the week; both are rated Buy. Coca-Cola fell 2.5%, McDonald's 1.9% and Mitsui & Co. 2.0%. See the reports on Nvidia, Tesla, Apple, Microsoft, McDonald's, Coca-Cola and Mitsui & Co.