Market Overview
US equities closed at record highs, primarily driven by strong performance in the technology sector and mega-cap names, fueled by persistent enthusiasm for artificial intelligence (AI). This rally was supported by a significant pullback in US Treasury yields from levels not seen since 2002. However, analysts cautioned that the rally appeared narrow, with mega-caps masking underlying weakness in other market segments. Meanwhile, oil prices, after an early slide, stabilized slightly higher amid ongoing geopolitical tensions and discussions surrounding emergency reserve releases.
Markets
US markets recorded new highs, with the S&P 500 (^GSPC) climbing 0.58% to close at 7,818.93, marking its first close above 7,800. The Nasdaq Composite (^IXIC) added 0.45% to finish at 27,599.79, also resetting its record. The Dow Jones Industrial Average (^DJI) gained 0.49%, closing at 51,521.28.
US Treasury yields retreated, with the benchmark 10-Year Treasury (^TNX) yield falling 4.20 basis points to 5.269%, and the 30-Year Treasury (^TYX) yield dipping 2.40 basis points to 5.641%.
In commodities, Brent Crude (BZ=F) traded 0.85% higher at $101.17 a barrel, recovering from an earlier slide, while WTI Crude (CL=F) rose 0.53% to $89.90. Gold (GC=F) saw an increase of 0.84% to $4,191.60. The VIX (^VIX), a measure of market volatility, closed at 15.01, down 3.29%. Bitcoin (BTC-USD) traded at 85,568, down 0.25%.
The Australian Dollar (AUDUSD=X) appreciated 0.49% to 0.6986 against the US dollar. Australian shares are anticipated to open flat, with S&P/ASX 200 futures reported down 1 point to 8764 near 7am AEDT. The ASX 200 (^AXJO) closed the previous session up 0.57% at 8,735.70. The Australia 10-year yield was reported at 5.40%, and iron ore prices were down 0.4% to $US91.40 a tonne.
What Drove Markets
The equity rally was significantly propelled by what Capital Economics’ James Reilly called the “strong performance of the IT sector,” driving the S&P 500 to a new all-time high. Chipmakers such as Marvell Technology, Advanced Micro Devices, and Broadcom posted substantial gains. BofA analysts also issued a tech stock warning. FactSet reported that positive earnings guidance reached a record high. James Reilly of Capital Economics commented that while the IT sector’s strong performance propelled the S&P 500 to a new all-time high, the rally appeared narrow even by recent standards. He noted that mega-caps were driving it, with the average IT firm more than 20% below its peak, suggesting such concentrated rallies might be less sustainable. Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, characterized the preceding months as a phase of macro exhaustion for investors. He observed significant damage to the cyclically oriented parts of the stock market despite AI mega-cap outperformance, highlighting that while mega-caps maintained an illusion of calm on the surface, the average member’s maximum drawdown since early August had been 14%.
The retreat in US Treasury yields from 2002 highs provided a crucial tailwind for equities. This decline was partly attributed to a softer-than-expected US jobs report for September, which led investors to sharply scale back expectations for imminent Federal Reserve monetary policy tightening. Stephen Kolano, chief investment officer at Integrated Financial Partners, observed that markets were up and AI was the place to be, with investors seemingly looking through current inflation concerns. Bets strengthened that the Fed might skip a rate hike this month before raising borrowing costs in December. This month also marks the fourth anniversary of the Wall Street bull market that began in 2022. According to Ryan Detrick, chief market strategist at Carson Group, this makes it the eighth longest bull market since World War II, with gains that represent the third best start ever. The broader bond rout was attributed to factors including oil-driven inflationary shock, worries over the massive amounts of debt being issued by companies to fund their AI infrastructure buildouts, hawkish central banks, and ballooning fiscal debt.
Oil prices experienced volatility, initially sliding below $100 a barrel before recovering. The market remains highly sensitive to geopolitical developments, including stepped up attacks on ships in the Strait of Hormuz, with the United Kingdom Maritime Trade Operations reporting nine incidents this month. A Group of Seven (G7) agreement, responding to pressure from President Donald Trump, to release 100 million barrels of diesel and crude from emergency reserves also influenced prices. Traders remained on edge amid no signs of diplomatic breakthroughs between the U.S. and Iran.
Regionally, the Reserve Bank of Australia (RBA) “frets potential AI stock slump could hit Australian spending.” Ray Dalio, founder of Bridgewater Associates, warned that the Treasury market could face further disruption this year if demand from China and Japan pulls back. He said China may be less willing to continue accumulating Treasuries, while Japan could also reduce its holdings after lending heavily to support its economic policy. Kevin Gordon suggested that a transition to earnings season might help alleviate some macro-driven anxiety, but also emphasized the need for a compression in bond and oil volatility to support equities.
Stocks to Watch
Several individual technology stocks hit record highs, including NVIDIA (NVDA), which hit a record high and closed at 239.24, up 0.14%, nearing a $US6trn valuation mark. Other chipmakers and tech names also advanced, with Advanced Micro Devices (AMD), which hit a record high, climbing 2.80% to 649.42, Marvell Technology (MRVL) surging 5.81% to 287.01, and Broadcom (AVGO) rising 3.67% to 375.81. CrowdStrike (CRWD), Palo Alto Networks (PANW), and Lumentum (LITE) also hit record highs, closing up 2.27% at 278.86, 3.23% at 419.91, and 3.82% at 1,133.40, respectively.
Outside of tech, Constellation Energy (CEG) surged 12.25% to 300.40 after announcing a 20-year power purchase agreement with Alphabet’s Google. Conversely, Skydance (SKYD) dipped 2.56% on its first trading day following the completion of the $110 billion acquisition of Warner Bros. Discovery by Paramount Skydance, which formed a new global entertainment giant.