U.S. equities rose on Monday, October 5, with the Nasdaq Composite closing at a record high and the S&P 500 sitting just short of its own peak. Meanwhile, Treasury yields climbed to levels not seen in more than two decades — a rare stretch in which stocks and bond yields are rising in tandem.
According to the Wall Street Journal, Reuters and others, the Nasdaq gained 286.45 points, or 1.05%, to finish at 27,477.31 — surpassing its previous record from September. The S&P 500 added 0.66% to 7,773.95, closing within about 0.6% of its mid-August record. The Dow rose 0.18% to 51,267.90. Every S&P 500 sector finished higher except real estate.
Futures pointed to further gains on Tuesday morning: by 5:50 a.m. ET, Dow E-minis were up 281 points (0.55%), S&P 500 E-minis up 19.5 points (0.25%), and Nasdaq 100 E-minis up 102 points (0.33%).
Artificial-intelligence stocks remained the engine of the rally. Nvidia rose 2.1% to a record $238.90, pushing its market capitalization past $5.7 trillion and into sight of the $6 trillion mark. Meta, Microsoft and Tesla also advanced, and SpaceX surged more than 7% after a positive analyst note.
The rally, however, is highly concentrated. Eric Diton of The Wealth Alliance noted that the Nasdaq is being driven by a handful of the largest stocks, and Monday even produced a rare divergence: the PHLX Semiconductor Index fell 0.7% while the Nasdaq gained more than 1%.
The bond market told a different story. The 10-year Treasury yield rose to 5.310%, its highest since April 2002, and the 30-year yield climbed to 5.664%, its highest close since May 2002. Yields eased slightly on Tuesday, with the 30-year falling to 5.626%.
Rising yields usually weigh on equities, but in recent weeks the two have advanced together. "If you think the benefits of AI are essentially infinite, so what if you have to pay more to borrow money?" said Steve Sosnick, chief strategist at Interactive Brokers. Inflation worries, heavy government borrowing and uncertainty over Federal Reserve policy have fueled a weeks-long bond selloff.
Last week's September payrolls report marked a turning point: the economy added just 29,000 jobs, far below the expected 84,000 and well under August's 162,000. Traders now see roughly a 78% chance that the Federal Reserve holds interest rates steady at its October meeting, though a December rate hike remains largely priced in, according to CME Group's FedWatch tool.
The September ISM services index showed expansion slowing, but its prices component hit a four-year high, suggesting the AI-driven expansion is generating inflation at the margins. J.D. Joyce of Joyce Wealth Management cautioned that at current rates, buyers are devoting far more of their disposable income to debt service than they did a few years ago.
This week is relatively quiet ahead of third-quarter earnings season, which kicks off next week with reports from the largest U.S. banks. Goldman Sachs estimates consensus forecasts point to 27% earnings growth for the S&P 500 last quarter, with more than half of that growth coming from companies benefiting from AI infrastructure spending. Whether results meet those lofty expectations will be a key test for current valuations.
Falling oil prices offered the market some relief. New York crude fell 1.8% to $89.43 a barrel, while Brent crude dropped to around $100.32. The Group of Seven agreed last week to release 100 million barrels of oil and processed fuels from emergency stockpiles. Still, Saudi Aramco chief executive Amin Nasser warned that the Middle East conflict has depleted global oil inventories, which could take up to two years to rebuild even after flows through the Strait of Hormuz normalize.