Ongoing Volatility

Weekly Market Update

📈 Markets End Higher Amid Ongoing Volatility

Stocks finished higher last week after another stretch of choppy trading. The S&P 500 and Dow Jones Industrial Average gained a little over 1.5% while the NASDAQ was up around 2%. Smaller stocks stole the show posting a near 3% rise on the week when all was said and done. After the previous week’s sharp selloff erased a month of gains, last week’s advance reflected a rather modest rebound from a sentiment-washed backdrop. These gains didn’t come easily as the markets swung between risk-on and risk-off moods, as investors weighed fluid U.S.–China trade headlines, regional bank concerns, and a solid start to Q3 earnings season.

Equities opened strong Monday after the President softened his tariff stance toward China, sparking a broad relief rally. Momentum faded mid-week when Beijing launched investigations into U.S. shipping affiliates in Asia and regional bank write-offs at Zions and Western Alliance rattled confidence. Encouraging results from major tech and semiconductor firms, along with strong earnings from select regional banks on Friday, helped the market end the week on firmer footing.

Sector performance was mixed: technology and communication services led on upbeat earnings and AI optimism, while financials lagged early but rebounded late. Defensive sectors, like utilities and staples, underperformed as investors seemingly rotated toward cyclicals.

💹 Rates, Dollar & Commodities

Treasury yields eased, with the 10-year yield ending near 4.0%, as investors sought safety amid credit jitters and expectations for a Federal Reserve pause in lowering interest rates. The U.S. dollar softened, supporting global risk appetite and commodity prices. Gold extended its rally, marking a ninth straight weekly gain on lower yields and safe-haven demand. Oil prices slipped modestly, pressured by demand concerns despite stable supply, while industrial metals firmed as cyclical optimism and a weaker dollar buoyed sentiment.

🔎 Takeaway
Markets continue to balance improving earnings and easing inflation with lingering trade and credit uncertainty. Volatility may persist but falling yields and resilient corporate results are currently helping keep the recovery narrative intact, even as we approach day 20 of the government shutdown.

Source: Stockcharts.com

🔮 Looking Ahead

The biggest economic headline this week will be Friday’s Consumer Price Index (CPI) report — the government’s main inflation reading. It was delayed by the recent shutdown, making it even more closely watched. A hotter-than-expected number could push bond yields and the U.S. dollar higher, pressuring stocks, while softer inflation could give markets a boost and reinforce expectations that the Federal Reserve will hold off on more rate hikes. Investors will also be listening closely to Fed officials for clues about whether rate cuts might come later this year, especially given softer growth and patchy data following the shutdown.

Meanwhile, the economic data vacuum from the shutdown (especially in labor market metrics) adds an extra layer of uncertainty, leaving markets more reliant on corporate earnings and trade/trade-war headlines for direction. Several large-cap companies are set to report results this week, including Tesla Inc., Netflix Inc. and Procter & Gamble as earnings season goes into full swing.

🌐 Broad Overview

Markets continue to juggle several cross-currents, but optimism still dominates the narrative. Expectations for further Fed rate cuts, robust AI-driven investment, and resilient consumer spending have helped lift major U.S. indices to record territory. Inflation has cooled sharply from its 2022 peak, and the labor market currently continues to soften in an orderly fashion, encouraging hopes for a durable expansion rather than a downturn.

Yet beneath the surface, a few warning signs have emerged. High-yield credit spreads have been quietly widening recently, marking a shift in risk appetite as investors began demanding more compensation to hold lower-quality debt. Meanwhile, market breadth has been deteriorating, with fewer stocks participating in the rally even as indices achieved their new highs. Historically, such divergences often act as “canaries in the coal mine,” suggesting that investor optimism may be running ahead of underlying market health.

The bond market, long regarded as the economy’s truth-teller, still signals confidence in a soft landing: Treasury yields have eased as investors anticipate additional rate cuts. Even so, the recent widening in credit spreads and weakening breadth hint that financial conditions could tighten beneath the surface. As the calendar moves deeper into October, a historically a volatile month, market leadership may grow more uneven before the typically strong fourth-quarter tailwinds reassert themselves. The key question now is whether investor optimism can stay grounded despite those early warning signs in credit and participation.

Stay tuned as we’ll continue to monitor these crosscurrents and keep you up to date as conditions evolve. Should you have any questions regarding your current strategy or the markets in general, please reach out to your CIAS Investment Adviser Representative.