Author: Davis Finke, CFA
Diplomacy was in the spotlight this week, with the United Nations General Assembly taking place in New York City and Chinese President Xi Jinping making his first trip to the United States since 2023. The UN General Assembly brought together world leaders, with tensions in the Middle East among the primary areas of focus. While there were hopes that the meetings would produce progress toward de-escalation and the reopening of the Strait of Hormuz, officials signaled that the two sides remain far apart. As a result, oil prices jumped on Wednesday after retreating earlier in the week. While the UN General Assembly failed to produce a diplomatic breakthrough, President Trump’s meeting with Chinese President Xi Jinping provided a more constructive development for markets. According to officials, the two leaders discussed a range of issues including artificial intelligence, trade, and investment. Importantly, the visit coincided with an agreement to extend the U.S.-China trade truce by two months, which had been set to expire on November 10th. While the extension does not represent a comprehensive or permanent trade settlement, it still helped support markets this week.
While Treasury yields and oil prices remain a focus for investors, markets managed to finish the week higher as the price of Brent Crude retreated from recent highs. Each of the three major U.S. equity indexes posted a weekly gain, with the tech-heavy Nasdaq leading the way, up 3.18%. The S&P 500 followed, up 1.20% for the week, while the Dow ended up 0.26%. At the sector level, technology was the best performer, up 3.51% for the week. Communication services, health care, and industrials also finished the week higher. The utilities sector was the worst performer, down 3.82%, followed by energy, down 3.35%. Despite oil prices remaining relatively flat for the week, Treasury yields continued to move higher. The 30-year Treasury yield reached 5.48% this week, the highest since 2004, while the benchmark U.S. 10-year yield reached 5.20%, the highest since 2007. While higher Treasury yields increase the government’s borrowing costs, they also feed through to interest rates faced by consumers. Thirty-year mortgage rates are now around 7%, which is the highest level in two years and roughly 1% higher than where they were at the start of the war. This recent increase in bond market volatility has created a headwind for equities, and elevated yields could remain a source of pressure as investors weigh geopolitical tensions, energy prices, inflation, and the Fed’s continued tightening cycle.
Looking ahead to next week, the economic calendar is filled with numerous high-importance releases. The PCE price index, which is the Fed’s preferred gauge of inflation, will be released on Wednesday along with data on personal income and spending. With much of the recent bond market activity being tied to inflation and Fed policy, any surprises with this inflation report will likely have a meaningful impact on markets. Investors will also receive September employment data on Friday, with the release of the non-farm payrolls report and unemployment rate. Recent employment data have remained strong, which has given the Fed more flexibility to maintain tighter monetary policy as it focuses on inflation, so Friday’s jobs report will provide investors with additional clarity on the future path of interest rates.
