Weekly Market Roundup
Interest rates and the Federal Reserve again set the tone last week, but this time the news from the bond market was better. On Wednesday the Treasury sold $39 billion of new 10-year notes at a yield of 5.30%, the highest yield at a 10-year auction since November 2000, yet demand was strong: investors accepted a slightly lower yield than the market expected going into the sale, and the share left for the dealers who backstop these auctions was well below its recent average. Thursday's 30-year bond sale also drew solid demand. After weeks of concern about the appetite for U.S. government debt, long-term rates eased modestly. The 10-year yield ended the week at 5.24%, down 0.04 percentage points, the 30-year finished at 5.60%, and the 2-year closed at 4.80%.
Minutes from the Fed's September meeting, when it raised its benchmark rate by a quarter point to a range of 3.75% to 4.00%, showed that most officials expect another increase by year-end and see the risks to inflation tilted higher. Fed Governor Christopher Waller added on Thursday that further hikes do not need to come at back-to-back meetings, and futures markets now see only a small chance of a move at the October 28 meeting while still pricing a December increase as likely.
The economic data pointed in two directions at once. The ISM services survey showed the service sector still growing, with a reading of 54.9, but the prices service businesses pay jumped to 74.0, the highest since July 2022. Coming a week after a similar jump in manufacturers' costs, that suggests price pressures are spreading beyond goods. Consumers, meanwhile, are growing gloomier. The University of Michigan's preliminary October sentiment index fell to 46.3, below the 47.8 economists expected, while households' expectations for inflation over the next year rose to 4.7% and over the next five years to 3.5%, both the highest since May. Energy remains a key source of that pressure. Brent crude ended the week near $104.50 a barrel and U.S. crude near $92, even after President Trump called talks with Iran productive and said there would be no military strike before the November 3 midterm elections. Delta Air Lines offered a concrete example of the strain, cutting its full-year profit outlook sharply as its fuel costs rose 62%.
Stocks finished the week higher, though the path was uneven. The S&P 500 gained +1.17%, the Dow rose +0.78% and the Nasdaq added +0.65%, while the small-cap Russell 2000 fell -0.90%. Technology stocks tied to artificial intelligence stumbled on Thursday after a Financial Times report that OpenAI's annual revenue is running closer to $50 billion than the roughly $68 billion widely cited, sending Oracle down 5.5%, Broadcom down 4.4% and Nvidia down 2.9%, and pulling the Nasdaq down 1.25% for the day. Telecom stocks were hit hard on Friday after SpaceX agreed to buy wireless spectrum for its Starlink mobile service: T-Mobile fell 13.3%, its worst day since 2013, AT&T dropped 9.8% and Verizon fell 8.75%, its worst day since 2002. Humana jumped 11.6% after 95% of its Medicare Advantage members landed in plans rated four stars or higher for 2027. International stocks slipped, with the MSCI ACWI Ex-USA index down -0.27% (+13.85% year-to-date) as the U.S. dollar strengthened, while the Bloomberg US Aggregate bond index gained +0.39%. Market volatility stayed contained, with the VIX closing the week at 14.84.
This week's focus is inflation. Monday is Columbus Day, so the bond market is closed while stocks trade. Third-quarter earnings season begins Tuesday with JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo, followed Wednesday by Morgan Stanley, Bank of America and BlackRock; the banks' results are an early read on loan demand, credit quality and how higher interest rates are affecting borrowers. The key release is Wednesday's September Consumer Price Index, where economists expect prices to have risen 3.6% from a year ago. With the Fed's December decision in play and the 10-year yield near its highest levels in many years, a hotter-than-expected reading could quickly push rates higher again, while a softer one would ease that pressure. The Fed's Beige Book, a survey of business conditions across its twelve regional districts, also arrives Wednesday. Thursday brings producer prices, retail sales, weekly jobless claims and the Philadelphia Fed's manufacturing survey, which together will show whether consumers are keeping pace with higher prices, and the week closes Friday with industrial production.
Last week was a welcome reminder that markets rarely move in a straight line. After weeks of concern about demand for Treasuries, strong buying at the 10- and 30-year auctions brought rates down modestly, bonds and stocks rose together, and the broader market participated more evenly, with the average S&P 500 stock outpacing the index itself. That said, we do not read one good week as a change in direction. Inflation pressures are broadening into services, consumers expect higher prices ahead, and the Fed has made clear that more rate increases are likely. Wednesday's inflation report will tell us more than any auction about where interest rates go from here.
Two developments last week also show why diversification matters. The sell-off in artificial intelligence stocks on a single news report, and the sharp drop in telecom shares on a competitive threat few investors had anticipated, are reminders of how quickly concentrated bets can reverse. At the same time, a stronger U.S. dollar has weighed on international stocks in recent weeks, part of the give and take of owning a broader global opportunity set. On the bond side, we have kept interest-rate exposure measured as long-term yields have climbed, and we see the higher yields now available as a meaningful source of income for patient investors.
We remain diversified across market capitalizations, sectors, and geographies, with an emphasis on higher-quality companies that can hold up in an environment of elevated borrowing costs. As always, we believe a disciplined, long-term approach, rather than reacting to any single inflation report or week's headlines, is the best way to navigate a period like this one.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com