Strong Economic Data Keeps Pressure on Yields

US equities were mostly lower last week with the S&P 500 down 0.27% and the Nasdaq up 0.45%. Performance was heavily weighted toward technology and AI related names, mostly relating to infrastructure and semiconductors (fifth straight weekly gain) after another blowout earnings report from memory chip maker Micron. The technology sector was up 1.44% with the energy sector the next best performer, rising 1.42% despite oil down slightly. The worst performing sector was healthcare, mostly from a selloff in biotech and pharma as rising yields meant higher funding costs. 

The bond market has received heightened attention as of late due to the extreme selloff over the past several months. In fact, the bond market just completed its worst quarter since 1994, with the 10-year US Treasury yield rising 87 basis points over the quarter, finishing at 5.34% for the highest level since 2002. Despite the significant repricing in the bond market, there has been little move in credit spreads and little spillover in the equity market as the S&P 500 has remained near all-time highs.

That is not the case for the entire market though. As we noted last week, if we look beneath the surface we can see a deterioration of breadth in the market.

The trend that started around mid-August continued last week – the indices perform well but there is obvious weakness for the average stock. The equal weighted S&P 500 index fell 0.70% last week, the seventh straight weekly decline which is the longest losing streak since 2022. In addition, only 25% of the index is above its 50-day moving average. For the third quarter, the S&P 500 and Nasdaq both rose over 2% while the Russell 2000 fell 7.5%.

Oil was relatively unchanged last week amid a lack of developments, although it was reported by Goldman an estimated 23 million barrels of oil left the Middle East last week via Hormuz and the Red Sea, which is in line with the 2025 average. In addition, the US and European Union announced a coordinated release of about 100 million barrels of oil and diesel from strategic stockpiles.

There was a lack of developments on the Iran front. A 7-day ceasefire proposal from Iran was rejected by President Trump as the US remains skeptical of Iran’s ability to meet demands. Trump reiterated plans to resume bombing after the midterm elections, and late in the week dispatched a third aircraft carrier to the region.

Most of the notable events revolved around stronger economic data. It was a busy week that included several manufacturing indicators, inflation, and labor market data. The data pointed to lower inflation and a strong jobs market.

The job openings and labor turnover survey showed 7.08 million open jobs (annual basis) on the last day of August. This was down about 250k in the month and right in the middle of the narrow range of 6.5 and 7.5 million job openings we have seen since 2024. Separations were relatively unchanged with the data indicating people are staying at their jobs longer versus switch more frequent.

The Department of Labor’s monthly employment report on Friday morning showed an addition of 29,000 payrolls in September, slightly below expectations. However, job gains have averaged around 70,000/month this year, well above the 10,000 average from 2025. Over the past 12 months, the number of payrolls has increased by 496,000.

At the same time, the number of people unemployed has declined by roughly 500,000 over the past year. Over this period the unemployment rate has dropped from 4.4% to 4.2%. Also notable, the unemployment rate for workers without a high school degree is down to 4.3%, tying the lowest level on record going back to 1992.

Even better news for markets and the economy came from the monthly personal income and spending report for August. The report includes figures from the PCE price index, the Fed’s most watched inflation readings.

The PCE price index increased 0.3% in August, right in line with expectations and follows a 0.2% increase in the month prior. The index is up 3.4% from a year ago, a notable deceleration from the 3.7% pace seen in July. Core prices, which exclude food and energy prices since they are more volatile and tend to see one-time price increases, were up 0.2%, slightly below the 0.3% expected. The annual rate was 3.0%, also decelerating 0.3% from the prior month.

Bond yields fell after the data was released, mostly on the shorter end of the yield curve (bonds with shorter maturities), over speculation the softer inflation data reduced the need for additional rate increases. The data was enough to push odds of a rate hike at the next Fed meeting to just 25%, down from around 70% at the start of the week.

However, other indicators on the economy, such as an upward revision to Q3 economic growth and stronger manufacturing surveys, provide additional evidence the economy remains resilient. Several Fed officials pushed back against expectations for near-term rate cuts, with policymakers emphasizing that inflation remains too high and that additional rate hikes may still be necessary. Fed Governor Philip Jefferson said the economy may require further tightening, while Dallas Fed President Lorie Logan estimated that at least two additional 25-basis-point rate hikes could be needed. The hawkish commentary kept upward pressure on yields throughout the week.



This week will be much more quiet before the calendar gets into a busier period of earnings. There is no notable economic data while the only significant earnings will come from PepsiCo and Delta Airlines. 

Recent Economic Data



• Employment Report: The monthly employment report saw 29,000 new payrolls in September, while still positive it was below the 85,000 new payrolls that was estimated. Government saw a decline of 17,000 while healthcare and leisure and hospitality saw the largest gains. The number of people unemployed increased by 78,000 to 7.109 million, causing the unemployment rate to tick slightly higher to 4.2%. The average wage increased just 0.1% and is up just 2.9% from a year ago, the slowest wage gains since early 2021.  

• ADP Payrolls: Payroll data from ADP shows there were 90,000 new jobs added in September, a jump from the 36,000 added in August and about 20,000 more than was expected.

• Job Openings and Labor Turnover Survey: The number of job openings the last day of August was at an annual rate of 7.079 million, down about 250k from July. After being well above average levels during the pandemic years, job openings have remained in a narrow range of 6.5 to 7.5 million over the past two years, which is within the same range as pre-pandemic. The number of separations was down about 60k in August to 5.070 million, which is down just 150k from a year ago. Separations have been split evenly between quits and layoffs.

• Jobless Claims: The number of jobless claims the week ended September 26 was 197,000, relatively unchanged from the week prior. The number of continuing claims was 1.701 million, down 11,000 from the prior week. The four-week average of continuing claims fell 18k to 1.724 million.

• Personal Income & Outlays: Consumer spending increased 0.9% in August, another strong increase, but may be due to higher spending on gasoline due to prices. Spending on goods rose 1.7% and spending on services rose 0.5%. Spending overall is up 6.1% over the past year, and after the impact of inflation, real consumer spending is up 2.7%. Personal income increased 0.2% in August, driven by the largest category wages and salaries, which were up 0.3%. Incomes are up 4.3% over the past year with wages up 4.2%. Some of the largest increases continue to happen in government transfer payments like social security, Medicare, and Medicaid. The PCE price index, which is the Fed’s favorite inflation reading, increased 0.3% in August, much lower than the 0.5% that was expected. Core prices (excluding food and energy prices) increased 0.2%, which was more in line with expectations. From a year ago the headline index is up 3.4%, with core prices up 3.0%, both matching the prior month.

• PMI Manufacturing Index: The PMI Manufacturing index showed that US manufacturing activity remained strong in September, with the index at 58.4, well above the 50 level that signals expansion. Growth was supported by new orders. However, price pressures continued to build, with higher input costs and supply constraints creating renewed inflation concerns.

• ISM Manufacturing Index: The ISM Manufacturing PMI showed that U.S. manufacturing remained firmly in expansion in September, with the PMI edging down to 54.5 from 54.6 but marking the ninth straight month of growth. Demand strengthened, with new orders rising to 55.3 and backlogs jumping to 56.4, while manufacturing employment also improved. The biggest concern was inflationary pressure, as the Prices Index surged to 77.9, its highest level since the Iran war began, reflecting higher steel and aluminum costs, tariffs and petroleum-related expenses.

• Consumer Confidence: The consumer confidence index fell to one of the lowest levels ever seen in the survey’s history. The index was 81.9 for September, down from 88.6 last month. The present situations index was 109.3, down from 117.2, while the expectations index was 63.6, a very depressed reading and down from 69.5 in August. 

Company News



• Apple: Bloomberg reported Apple's new CEO John Ternus is beginning to reshape the company around faster product development, more frequent launches and a leaner organizational structure. He is cutting some management layers, holding down headcount and budgets, and pushing Apple to experiment with a broader range of products as it tries to keep pace in AI. The strategy represents a shift from Apple's highly predictable product cycle toward a potentially more aggressive and engineering-driven approach. It was separately reported Apple is set to unveil smart home products on October 13.

• Nvidia: Shares of Nvidia moved higher after it announced it will increase its stock buyback program by $150 billion, leaving the company with $235 billion in buyback authorization, making it the largest buyback program in history (equaling roughly 4.2% of its market value). CEO Jensen Huang cited its strong cash generation and confidence in long-term AI opportunities.

• MongoDB: Shares of the database platform company MongoDB were one of the worst performers last week, losing over 25% of its value after its CEO CJ Desai unexpectedly stepped down to take a lead role in Meta’s new enterprise platform, directly reporting to Zuckerberg. The timing had an impact too, occurring one day before its investor event.

• Boeing: Boeing’s 737 MAX 10 certification has been delayed after the FAA identified a software issue affecting automated flight guidance during a specific landing scenario. Boeing says pilots can still safely control the aircraft and is developing a software update, but the FAA has not given a timeline for resolving the issue.

• Fair Isaac: Shares of Fair Isaac, creator of the FICO score which basically owns a monopoly in the industry, were down over 25% after TransUnion said it will extend its $0.99-per-score pricing for its new VantageScore 4.0 through the end of 2028. The timing is significant because the FHFA has now made VantageScore 4.0 available to all approved Fannie Mae and Freddie Mac lenders, giving lenders an alternative to the traditional FICO score. FHA is also scheduled to accept VantageScore 4.0 beginning in 2027. VantageScore is a scoring system created by the big three credit agencies.

• Google: Google said it and Planet Labs launched a prototype satellite carrying Google’s AI chips (TPUs) aboard a SpaceX Falcon 9 as part of Google’s Project Suncatcher, an effort to explore whether AI computing could eventually be performed in space. The satellite will spend about a year testing how the chips handle radiation, extreme temperatures and cooling in a vacuum, while running AI workloads. The longer-term goal is to build networks of AI satellites powered by near-continuous sunlight, potentially helping address the enormous energy demands of AI data centers, though the concept remains highly experimental and years from commercial deployment.

• Broadcom: Bloomberg News reported Broadcom is arranging up to $60 billion in financing to support Anthropic’s massive AI infrastructure buildout. The package includes up to $42 billion of debt from Broadcom to help Anthropic lease computing capacity, with another $18 billion of junior debt being arranged through Wall Street banks. Anthropic has committed roughly $125 billion over five years for computing capacity. 

Other News



• AI Executives Meet in Washington: Trump met with leading AI executives at the White House last week, where the companies signed a voluntary agreement outlining AI safety practices such as internal controls, risk assessments and independent audits. The pact is not legally binding, with Trump instead emphasizing industry self-regulation and continued rapid AI development, while also supporting further data-center investment. Trump additionally floated a 10-person AI oversight committee and launched an AI-powered government chatbot, as the administration seeks to balance growing concerns about AI safety with its push to maintain U.S. leadership in the technology.



• Wireless Joint Venture: AT&T, T-Mobile, and Verizon have launched a new joint venture aimed at reducing wireless dead zones by expanding network coverage in areas where building traditional infrastructure is difficult or uneconomical. The venture will focus on deploying shared wireless infrastructure, including new approaches to extending coverage, allowing customers of all three carriers to stay connected in underserved areas. Paul Roth, the former CEO of eBay, has been named interim CEO.

• Powell Criminal Case: The Federal Reserve’s inspector general found significant management and oversight failures in the renovation of the Fed’s Washington headquarters, but found no evidence of criminal or administrative misconduct and no grounds for a criminal referral. The project’s cost has ballooned from an initial $921 million estimate to roughly $2.4–$2.5 billion, with the report noting poor cost controls, design changes, inflation, limited bidding and unforeseen site issues contributing to the overruns. The watchdog also found that high-profile features such as marble, water features and private elevators did not materially drive the cost increases. The findings cleared former Fed Chair Jerome Powell of wrongdoing.

• Fed Talk:
• Fed Governor Lisa Cook said the inflationary effects of the AI boom may be spreading beyond the technology sector. She pointed to the massive data-center buildout increasing demand for construction labor and energy, along with electricity and water prices up around 5% over the past year, suggesting AI-related demand could be contributing to broader price pressures. She later said the Fed has traditionally looked through shocks such as oil-price spikes or wars because rate hikes cannot directly fix those problems, but policymakers may now need to consider a more tailored response depending on the sector affected and the impact on inflation expectations.
• NY Fed President John Williams pushed back against expectations for an imminent October hike, saying there is “no need for urgency” and that the Fed has time to gather more data, while adding he still sees one additional hike later this year as potentially appropriate.
• Fed Vice Chair Philip Jefferson said he remains concerned that higher energy prices could turn a temporary inflation shock into more persistent inflation, particularly because the economy is facing several shocks at once, including energy prices, AI investment and trade policy.
• Dallas Fed President Lorie Logan said the Fed likely needs at least two more 25-basis-point rate hikes to bring policy into modestly restrictive territory and get inflation back toward the Fed’s 2% target. She acknowledged that higher long-term Treasury yields could do some of the Fed’s tightening work, potentially reducing the need for additional hikes, but for now she estimates another 50 basis points or more may be necessary.

Did You Know...



US Debt Outgrows the Economy:

The U.S. government’s debt held by the public has officially surpassed the size of the U.S. economy. As of early 2026, publicly held debt reached roughly 100% of GDP, a milestone last briefly reached during the pandemic. The Congressional Budget Office projects the ratio will rise to 120% by 2036 if current tax and spending policies remain in place. While a debt-to-GDP ratio above 100% does not necessarily signal an immediate crisis, the bigger concern is that debt is continuing to grow faster than the economy, increasing the government’s interest burden and potentially putting upward pressure on borrowing costs. Even more striking, the cost of servicing that debt is climbing rapidly. The CBO projects the federal government will spend more than $1 trillion on net interest payments in 2026, up from $970 billion in 2025. By 2036, annual interest costs are projected to reach $2.1 trillion, or 4.6% of GDP—nearly doubling over the next decade and approaching the amount the government spends on all discretionary programs combined.

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