Nasdaq ends at record; dollar strengthens, yields rise

The new trading week began with the Nasdaq Composite and Nasdaq 100 both finishing at record highs. Equities managed to advance despite an increase in longer-term bond yields and a dollar that strengthened against most major currencies. Crude oil, in contrast, ended the session lower after yet another session driven by headlines.

The economic environment is still a balancing act. The softer jobs report from Friday eased worries about an immediate Fed rate increase, but the ISM services report for today showed ongoing demand expansion and elevated price pressures. For equities, the appeal lies in continued growth with less urgency for another rate rise. The downside is that stubborn inflation and increasing borrowing costs may eventually spoil that combination.

The US dollar advanced against all major currencies except the Australian dollar.

In the late-session picture, the dollar strengthened against six of the seven major currencies. The biggest advance came against the New Zealand dollar, with the Australian dollar being the only one to rise against the greenback:

• EURUSD: 1.1217, down 0.32%.
• USDJPY: 157.98, up 0.10%.
• GBPUSD: 1.3219, down 0.17%.
• USDCHF: 0.8304, up 0.22%.
• USDCAD: 1.4261, up 0.10%.
• AUDUSD: 0.6968, up 0.22%.
• NZDUSD: 0.5598, down 0.37%.

The euro was also dealing with its own difficulties. France's fiscal situation and political uncertainty ahead of the next presidential election, due next year, continued to weigh on sentiment. InvestingLive's European coverage noted that the premium on French borrowing costs over German ones has widened. This places extra downward pressure on the euro, beyond the narrative from US interest rates.

The Treasury yield curve steepened.

The Treasury market at the end of the day revealed a divergence between short-term and long-term yields:

• 2-year yield: 4.8143%, down 1.07 basis points.
• 5-year yield: 5.0589%, up 0.39 basis points.
• 10-year yield: 5.3110%, up 3.40 basis points.
• 30-year yield: 5.6645%, up 3.45 basis points.

The implication: reduced anxiety about an imminent Fed rate increase is supporting the short end, but long-term borrowing costs continue to climb. Equities managed to absorb that development today. Still, a 10-year yield above 5.30% continues to present a challenge for stock valuations and financing expenses.

The Nasdaq indices ended the session at record highs.

Each of the five main US stock indices ended the day in positive territory, with the Nasdaq Composite posting the largest percentage gain:

• Dow industrial average: 51,273.12, up 91.01 points or 0.18%.
• S&P 500: 7,773.96, up 51.25 points or 0.66%.
• Nasdaq Composite: 27,477.31, up 286.45 points or 1.05% — a record close.
• Russell 2000: 2,847.1356, up 14.2409 points or 0.50%.
• Nasdaq 100: 31,076.44, up 268.51 points or 0.87% — a record close.

The Nasdaq's outperformance aligns with ongoing enthusiasm for technology and artificial intelligence investments. Yet there are still factors beneath the surface that merit attention. InvestingLive's credit-spread coverage pointed out that spreads were widening even as equities gained from diminished Fed hike expectations. If creditors are asking for additional compensation for credit risk, that is something stock traders should monitor.

France underperformed in the European session.

Most major European stock markets closed higher, but France was a notable outlier:

• Germany’s DAX: 25,254.22, up 23.01 points or 0.09%.
• France’s CAC 40: 7,834.11, down 63.09 points or 0.80%.
• U.K.’s FTSE 100: 10,497.95, up 36.01 points or 0.34%.
• Spain’s IBEX 35: 19,299.69, up 214.38 points or 1.12%.
• Italy’s FTSE MIB: 50,818.39, up 335.17 points or 0.66%.

This divergence is significant. The drop in French stocks reflects fiscal and political issues specific to France, not a general pullback in European equities.

The ISM services report for September showed growth slowing and prices picking up.

The September ISM Services PMI registered 54.9, compared to expectations of 55.2 and the prior month's 55.4. This was a slight shortfall, but the index has stayed above 50 for 27 months in a row.

The subcomponents showed a mixed picture:

• Business activity fell to 56.5 from 61.7.
• New orders eased to 59.8 from 60.9, still signaling solid demand.
• Employment improved to 50.1 from 47.8, returning to slight expansion.
• Prices rose to 74.0 from 72.6, the highest since July 2022.
• Backlogs increased to 56.6 from 55.6.
• New export orders fell into contraction at 46.9 from 56.3.

For market participants, a marginally softer headline does not necessarily imply a softer inflation outlook. Businesses still have orders to complete, employment steadied, and costs rose. This gives the Federal Reserve grounds to stay careful about claiming victory over inflation. Market commentary at the time suggested there was minimal immediate response to the data.

Crude oil prices turned around from earlier gains and ended the session lower.

Oil ended the day down following contradictory reports concerning Saudi Arabian energy infrastructure:

• November WTI settled at $89.43, down $1.68, or approximately 1.84%.
• December Brent settled at $100.32, down $1.93, or approximately 1.89%.

An earlier AFP report saying that pumping on Saudi Arabia's East-West pipeline had stopped after an attack initially pushed prices higher. Those advances were erased after Bloomberg sources indicated the pipeline was operating normally.

The wider supply situation also provided some comfort. InvestingLive's oil report noted that recovering Gulf exports and a release from G7 reserves were counterbalancing the persistent threat of attacks on energy installations.

Lower crude prices provide some relief on the inflation front, but the Treasury action today indicates it was insufficient to reduce long-term yields. Headlines from the Middle East still have the potential to drive the next market move.

What to watch for in the coming session?

Equity buyers remained in command today, as both Nasdaq indices finished at records. The upcoming challenge is whether that momentum can persist with the 10-year yield above 5.30%. Watch the dollar's widespread advances, France's borrowing cost issues, and the next development from the Middle East. The Federal Reserve's minutes on Wednesday will offer further insight into how policymakers weigh softer jobs data against ongoing inflation.