FX.co ★ Market propped up by high-tech giants

Up 42% — that's how much Brent oil rose in Q3. 10-year Treasury yields jumped almost 90 basis points, the biggest quarterly spike since 1994. In such an environment, stocks should have fallen in unison. Yet the S&P 500 closed the quarter up about 2%.

Dynamics of US benchmark stock indices

It's all about the tech giants. Microsoft, Meta, Nvidia, and Apple all gained more than 10% in the quarter. The Nasdaq Composite climbed 2.5% and hit a record on September 22. The Dow Jones dropped 2.7%. The equal-weighted S&P 500, where every company carries the same weight, sank 2.3% and ended a five-quarter winning streak. The small-cap Russell 2000 plunged 7.5%.

Oil and interest rates are weighing on stocks. Commodities are rallying on the Iran war. Cboe Global Markets notes that the correlation between oil prices and 10-year yields is now higher than at any time since the 1990 Persian Gulf war. CME pricing implies about a 60% chance of at least four additional rate hikes in the next 12 months.

Equal-weighted S&P 500's losing streak

The market's narrowness is a negative for the broad market. The equal-weighted index risks falling for a seventh consecutive week — a pattern seen only twice before (in 2002 during the dot-com bust and in 2022 during the bear market). In September, only two S&P 500 sectors rose: information technology and communication services. Financials lost almost 7%.

Inflation cooling is helping the S&P 500. The PCE price index — the Fed's preferred inflation gauge — rose 0.3% month-on-month in August, and the core PCE rose 0.2% — both below expectations. The futures market trimmed the probability of an October Fed hike from roughly 50% to about 36%.

A bright spot is the resilience of the US economy. Q2 GDP beat forecasts, consumers are not cutting spending, and the labor market rebounded sharply in September. That mix supports risk assets and pushes expected monetary tightening toward year-end.

AI boom underpins the market. The Brookings Institution estimates $10.3 trillion of investment in data centers and related infrastructure from 2025–2032 — or 3.6% of US GDP. Wall Street views AI as a freight train that a couple of 25-bp Fed hikes won't stop. The S&P 500 and Nasdaq still have a chance at a fourth straight year of double-digit gains — something not seen since the late 1990s.

Personally, a market propped up by four stocks looks like a table with one leg to me. It will stand until someone gives it a push.

Technically, the daily S&P 500 chart shows bulls and bears fighting over key support. If the pivots around 7,645 and the fair-value area near 7,640 do not hold, it will open up selling opportunities.