Weekly Wrap

The major averages finished a volatile week mixed as the Federal Reserve's first rate hike since 2023 and another stretch of elevated Treasury yields kept pressure on much of the market, while strength in technology and other large-cap growth stocks provided an important offset. The S&P 500 slipped 0.1% and the DJIA fell 1.7%, while the Nasdaq Composite gained 0.7%. Small- and mid-cap stocks faced considerably greater pressure, with the Russell 2000 down 1.5% and the S&P Mid Cap 400 falling 1.7%.

Interest rates were a major influence throughout the week, with the 10-year note yield repeatedly testing the 5.00% level ahead of Wednesday's FOMC decision. The Fed delivered the widely expected 25-basis-point rate hike, lifting the target range for the fed funds rate to 3.75-4.00%, but the initial reaction was relatively subdued. Selling accelerated during Fed Chair Kevin Warsh's press conference as his emphasis on persistent inflation and the prospect of additional tightening sent Treasury yields sharply higher and erased an earlier advance in stocks.

Thursday brought a meaningful reversal as Treasury yields retreated and technology stocks returned to the forefront. The S&P 500 gained 1.1% and reclaimed its 50-day moving average, while the Nasdaq surged 1.7% behind broad strength in semiconductors, AI infrastructure stocks, and the Magnificent Seven. That rebound proved particularly important after three consecutive losing sessions and helped the large-cap averages recover much of their earlier weakness.

Technology ultimately provided one of the week's primary sources of support despite considerable volatility. The information technology sector gained 1.1%, while the PHLX Semiconductor Index rose 0.8% despite plunging nearly 6% on Monday. Software stocks were even stronger, with the iShares Expanded Tech-Software ETF advancing 2.8%. The Vanguard Mega Cap Growth ETF also gained 1.1%, while the communication services sector rose 1.2%.

The strength in large-cap growth contrasted sharply with weakness across much of the rest of the market. The utilities (-3.0%) and real estate (-2.3%) sectors were among the biggest laggards as elevated yields weighed on rate-sensitive stocks, while the materials (-1.9%), consumer discretionary (-1.5%), industrials (-1.5%), and financials (-1.3%) sectors also finished firmly lower. The SPDR Retail ETF fell 3.3%, and the iShares U.S. Home Construction ETF declined 2.4%, underscoring some of the pressure on consumer- and rate-sensitive areas. The health care sector (+1.8%) was a notable exception to the broader weakness.

Crude oil remained another source of volatility, briefly climbing above $105 per barrel as developments surrounding the U.S.-Iran conflict remained in focus. Prices subsequently retreated as the week progressed and WTI finished near $100 per barrel, roughly unchanged for the week, limiting its overall impact on weekly sector performance despite pronounced swings during individual sessions.

Overall, the relatively modest move in the S&P 500 masked a much weaker showing beneath the surface. The Fed's rate hike and the continued presence of the 10-year yield near 5.00% weighed heavily on smaller companies and rate-sensitive areas, while technology, software, and mega-cap growth stocks provided enough support to keep the Nasdaq higher and the S&P 500 near its flat line. Thursday's rebound demonstrated the continued influence of AI and large-cap growth leadership, but the week's pronounced performance gap left the broader market considerably weaker heading into next week.

• Nasdaq Composite: +0.7% week-to-date
• S&P 500: -0.1% week-to-date
• Russell 2000: -1.5% week-to-date
• DJIA: -1.7% week-to-date
• S&P Mid Cap 400: -1.7% week-to-date

Monday:

The major averages started the week on a lower note as a sharp selloff in semiconductor stocks and another increase in crude oil overshadowed strength across software, defensive groups, and select mega-cap names. The S&P 500 (-0.5%), Nasdaq Composite (-0.6%), and DJIA (-0.3%) finished with modest losses after spending much of the session well below their opening levels, while the S&P 500 Equal Weighted Index ended unchanged.

Selling was considerably more pronounced during the morning, when the S&P 500 briefly slipped below 7,600 as crude oil topped $104 per barrel and the 10-year note yield moved above 5.0%. Those pressures moderated as the day progressed, allowing the major averages to recover a sizable portion of their early declines.

The retreat in oil from its session high was an important factor behind the market's recovery. WTI crude settled $1.15 higher (+1.2%) at $101.23 per barrel, well below its morning peak. The initial surge followed the shutdown of Saudi Arabia's East-West pipeline and the postponement of planned discussions between Gulf states and Iran regarding shipping through the Strait of Hormuz. Some of the geopolitical pressure subsequently eased after President Trump said Iran wants to reach an agreement quickly and that the U.S. is open to talks.

The day's most pronounced weakness was concentrated in semiconductor and AI infrastructure stocks. The PHLX Semiconductor Index plunged 5.9%, dragging the information technology sector (-1.7%) lower as renewed debate surrounding AI safety raised the possibility that development of increasingly powerful models could eventually face constraints. Weakness spilled into other beneficiaries of the AI infrastructure buildout, contributing to the industrials sector's (-1.4%) decline. Corning (GLW 143.50, -22.90, -13.76%), Teradyne (TER 329.20, -50.52, -13.30%), and Coherent (COHR 266.50, -38.87, -12.73%) were among the worst-performing S&P 500 components, with Corning facing the additional headwind of a prospectus supplement related to an equity distribution agreement covering up to $2 billion of common stock.

OpenAI CEO Sam Altman's indication that an IPO this year would be ill-advised provided another talking point surrounding the AI landscape.

The other side of the AI trade looked dramatically different. The iShares GS Software ETF surged 5.0%, led by outsized gains in cybersecurity stocks as concerns surrounding increasingly autonomous AI systems drew greater attention to potential security threats. CrowdStrike (CRWD 235.38, +28.64, +13.85%), Palo Alto Networks (PANW 373.94, +43.29, +13.09%), and Gartner (IT 197.07, +17.48, +9.73%) finished among the best-performing S&P 500 components, creating a stark contrast with the heavy selling across semiconductor stocks.

Strength elsewhere also helped keep the broader market's losses relatively contained. Alphabet (GOOG 345.71, +10.26, +3.06%) and Meta Platforms (META 665.60, +17.57, +2.71%) powered the communication services sector (+2.8%) to the top of the standings, while investors also gravitated toward defensive areas.

The health care (+1.4%) and consumer staples (+1.3%) sectors posted solid gains, with Kroger (KR 60.91, +2.42, +4.14%) extending its positive momentum following last week's earnings report. The utilities sector (-1.3%) was a notable exception to the defensive strength.

Monday's session ultimately featured a sharp rotation beneath relatively modest losses for the major averages. Semiconductor and AI infrastructure stocks bore the brunt of the selling, while software, cybersecurity, communication services, and defensive groups provided meaningful offsets. The recovery from the morning lows also coincided with some easing in two major macro headwinds as crude retreated from above $104 and the 10-year yield moved back below 5.0%, although soft market breadth suggested buying interest remained selective. Attention now shifts to Wednesday's FOMC decision as the week's primary scheduled catalyst.

There was no economic data of note today.

U.S. Treasuries began the week with modest gains in most tenors after an early continuation of last week's selling found mid-morning resistance, sparking a shallow bounce. The 2-year note yield settled down one basis point to 4.63% and the 10-year note yield settled down one basis point to 4.96%. 

There was no economic data of note today. 

Tuesday: 

The major averages finished lower for the second consecutive session on Tuesday as another surge in crude oil, elevated Treasury yields, and caution ahead of tomorrow's FOMC decision kept buying interest subdued. The S&P 500 (-0.5%), Nasdaq Composite (-0.8%), and DJIA (-0.6%) all ended in negative territory following a relatively quiet afternoon.

Oil prices were again a major influence on the session. WTI crude settled $4.59 higher (+4.5%) at $105.82 per barrel, marking its tenth gain in the past 11 sessions and leaving oil nearly $20 per barrel higher in September as the conflict with Iran continues. The latest advance pushed crude to its highest level since late May and helped the energy sector (+2.3%) finish comfortably atop the sector standings.

Higher interest rates presented another obstacle for equities. The 10-year note yield rose four basis points to 5.00%, keeping pressure on rate-sensitive areas of the market. The utilities sector (-1.2%) was among the more pronounced laggards after also retreating yesterday, as elevated Treasury yields increased the relative appeal of fixed-income alternatives.

The consumer discretionary sector (-1.8%) finished at the bottom of the standings amid continued concerns about inflation squeezing consumer-company profit margins. Homebuilders were also pressured by the elevated rate environment, while Chipotle Mexican Grill (CMG 34.83, -2.20, -5.94%) and Carvana (CVNA 66.89, -3.98, -5.62%) were among the group's notable individual laggards.

Technology stocks offered some relative support after yesterday's sharp semiconductor selloff, although the early rebound in chip stocks lost considerable momentum as the session progressed. The PHLX Semiconductor Index (+0.4%) finished modestly higher after gaining nearly 2.0% this morning, while the information technology sector (-0.3%) ended with a relatively modest loss.

Mega-cap weakness remained a drag elsewhere, contributing to the communication services sector's (-0.8%) decline. The financials sector (-0.3%) also faced pressure though it recovered from its worst levels, with weakness in crypto-related names intensifying during the afternoon after the U.S. Senate failed to advance the Clarity Act in its first procedural vote. Coinbase Global (COIN 172.11, -19.34, -10.10%) finished among the worst-performing S&P 500 components after already trading sharply lower earlier in the session as Bitcoin gave back yesterday's gain.

Aside from the energy sector, only the materials sector (+0.4%) managed to finish higher after spending part of the morning in negative territory.

Corporate headlines were otherwise relatively quiet and did little to alter the broader direction of the market. The lack of meaningful buying interest also came as investors prepared for Wednesday's FOMC decision. The CME FedWatch Tool assigns a 94.5% probability to a 25-basis-point rate hike. With crude oil above $105 per barrel and the 10-year yield back at 5.00%, the Fed decision takes on added significance as investors weigh persistent inflation pressures against an increasingly difficult backdrop for equities.

U.S. Treasuries found renewed pressure on Tuesday, causing longer tenors to give back their modest gains from the start of the week. The 2-year note yield settled up three basis points to 4.66%, and the 10-year note yield settled up four basis points to 5.0%. 

Reviewing today's data: 

• The Empire State Manufacturing Index fell to 7.6 in September (Briefing.com consensus 14.1) from 20.6 in August.

Wednesday:

The major averages staged an afternoon recovery on Friday, leaving the S&P 500 (+0.2%) and Nasdaq Composite (+0.4%) with modest gains while the DJIA (-0.2%) finished slightly lower. The improvement followed a weaker first half of the session, when rising Treasury yields and broad selling pressure had pushed the major averages to their session lows.

The recovery was driven largely by renewed strength in technology stocks and select mega-cap names rather than a broad-based advance. Only three S&P 500 sectors finished higher, while the Russell 2000 (-0.5%) and S&P Mid Cap 400 (-0.3%) continued to trail the large-cap indices. That divergence left the Nasdaq Composite as the only major index to finish the week with a week-to-date gain.

Semiconductor stocks provided the clearest source of leadership during the afternoon. The PHLX Semiconductor Index surged 2.8%, helping the information technology sector (+0.8%) finish atop the sector standings. Memory and storage names were particularly strong, with Sandisk (SNDK 1791.82, +177.43, +10.99%), and Seagate Tech (STX 858.79, +55.66, +6.93%) posting sizable gains amid continued enthusiasm surrounding AI data-center demand and tight storage supply.

Coherent (COHR 317.36, +21.38, +7.22%) was another standout, finishing among the best-performing S&P 500 components after announcing an expansion of its Pluggable Optical Line System portfolio targeting high-capacity interconnect requirements for cloud and AI infrastructure.

Mega-cap strength provided another source of support, leaving the Vanguard Mega Cap Growth ETF up 0.4%.

Amazon (AMZN 253.71, +2.52, +1.00%) was a standout and helped the consumer discretionary sector finish unchanged despite broader weakness within the group. The industrials sector (+0.5%) was another of the three sectors to finish higher, while the financials sector (+0.1%) received some support from continued strength in Coinbase Global (COIN 194.25, +20.28, +11.66%) and Robinhood Markets (HOOD 119.82, +10.01, +9.12%) following yesterday's announcement of the SEC's "Innovation Exemption" allowing crypto exchanges to offer tokenized equities and a surge in Bitcoin past the $81,000 mark.

The afternoon improvement came despite renewed pressure from Treasury yields. The 10-year note yield rose five basis points to 5.00%, leaving it two basis points higher for the week and reversing most of Thursday's decline. Rate-sensitive areas consequently remained under pressure, with the utilities sector (-1.3%) finishing at the bottom of the standings and the iShares U.S. Home Construction ETF falling 1.3%.

The materials sector (-1.1%) was another pronounced laggard as Nucor (NUE 248.38, -16.76, -6.32%) and Steel Dynamics (STLD 235.26, -10.09, -4.11%) remained under pressure following disappointing third-quarter earnings guidance.

The communication services sector (-0.7%) also finished lower after beginning the session on a stronger note, with Netflix (NFLX 71.77, -3.54, -4.70%) weighed down by a Wells Fargo downgrade to Underweight from Equal Weight.

Crude oil moved in the opposite direction of Treasury yields, with WTI settling 1.8% lower at $100.24 per barrel, nearly flat for the week.

Friday's session ultimately featured a meaningful recovery from broad morning weakness, but participation remained relatively narrow. Semiconductor and mega-cap strength was enough to lift the S&P 500 and Nasdaq into positive territory despite higher Treasury yields, weakness in small and mid-cap stocks, and losses across most S&P 500 sectors. The Nasdaq's relative strength was also sufficient to leave it as the only major index with a gain for the week.

U.S. Treasuries had a poor finish to the week, which locked in weekly losses for the 10-year note and shorter tenors while the long bond continued its recent show of outperformance, recording a modest gain for the week. The 2-year note yield settled up five basis points to 4.74% (+10 basis points this week), and the 10-year note yield settled up five basis points to 5.00% (+2 basis points this week).