Treasury yields pulling back from multiyear highs gave tech stocks a Friday morning boost, but surging oil prices, a looming Fed statement, and a fresh consumer sentiment reading still stand between bulls and a clean weekly close.
The S&P 500 is set for a slightly higher open Friday, with the SPDR S&P 500 ETF (NYSEARCA:SPY) up 0.3% premarket near $776. Treasury yields pulling back from multiyear highs are helping. Tech leads: the Invesco QQQ Trust (NASDAQ:QQQ) is up 0.7%, while the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) is just moving at 0.1%.
Bond Market Relief Is Carrying Stocks
The 10-year Treasury yield fell to 5.2% Thursday from 5.3%, and the 30-year slid to 5.6%. Yields eased after the Treasury market passed a crucial test of investor confidence at a bond auction. When risk-free bonds pay above 5%, growth stock valuations contract, which is why the Nasdaq 100 benefits most when yields ease.
Policy is still tight. After a quarter-point increase over the past month, the upper end of the Fed’s target range stands at 4%. An FOMC press release is on the calendar for 2 p.m. ET, so the morning rally is still exposed to a hawkish surprise.
Oil Keeps Inflation Pressure Alive
Crude rose Thursday. That was because attacks on tankers in the Strait of Hormuz reached their highest level since the Iran war began and Hurricane Isaias threatened production along the Gulf Coast. Prices fell after President Trump vowed not to attack Iran until after the November 3 midterm elections. WTI recently traded at $96 after hitting $107 in mid-September.
Oil this expensive works like a tax on consumers and feeds the inflation data the Fed is fighting, and that puts a ceiling on how far yields can fall.
Calm Fear Gauge, Lagging Blue Chips
At just above 15, the VIX sits calm, down from 16 a week earlier. Leadership is narrow: the Dow ETF is down about 3% over the past month while QQQ has gained 5%. The Dow’s industrial, financial and consumer names feel high fuel costs and interest rates more directly. Small caps in the Russell 2000 carry more floating-rate debt, making them most sensitive to the Fed’s Oct. 7 statement.
If you own index funds, you’re relying heavily on mega-cap tech to carry the gains. A portfolio balanced across sectors will likely lag the Nasdaq while yields stay above 5%.
Key Catalysts Before the Weekend
The University of Michigan’s Consumer Sentiment Index release at 10:00 a.m. is today’s biggest event. It is heavily utilized by government policymakers (including the Federal Reserve) to gauge consumer spending health and inflation expectations. After that, watch where Hurricane Isaias makes landfall and whether Tehran answers the U.S. response to its proposal for the key shipping chokepoint, which it said would come within days. Updated Treasury rates are due at 4:15 p.m. ET.
Contact [email protected] for any questions or corrections.