Treasury yields continued climbing Friday, with the 10-year note briefly hitting 5.23%—its highest level since June 2007—while the 30-year yield exceeded 5.51%, levels not seen since 2004. Wall Street remains divided on the catalyst, debating whether stubborn inflation, rapid growth, or the exploding deficit is driving the surge.
Strong economic surveys released Wednesday, particularly in manufacturing, suggested the bull case in equities remains intact. Some investors argue higher yields simply reflect an economy running hot, especially with tens of billions flowing into AI-related ventures. “The economic restraint that the capital markets/Fed is providing will slow growth,” Dennis DeBusschere at 22V Research wrote, predicting a gradual slowdown toward 2% real growth that would eventually benefit equities.
In that scenario, tech stocks would remain the primary beneficiaries, and indeed the Nasdaq Composite and Magnificent Seven advanced this week while cyclical sectors and financials lagged. The S&P 500 staying near all-time highs in September suggests momentum remains, though historically strong Q4 performance brings heightened risk during midterm season.
“I continue to think that there’s more risk to the downside than to the upside,” said Justin Bergner of Gabelli Funds. “Higher interest rates should reset asset prices lower to some degree.” He questioned whether markets are adequately pricing the negative effects of rates versus AI productivity gains.
Consumers now face bond yields not seen in a generation after five years of higher prices for gas, groceries, autos, and housing. The 30-year fixed mortgage rate jumped to 7.45%, while wages stagnate and AI disruption fears grow. “Consumers’ been holding in. How long can that last?” Bergner asked.
Next week brings critical inflation data before the Fed’s October meeting, including the PCE price index and September jobs report showing payrolls expected to halve to 85,000. The unemployment rate should hold at 4.1%.
Week Ahead Calendar (All times ET)
Monday, Sept. 28: No major data
Tuesday, Sept. 29: FHFA Home Price Index, Consumer Confidence, JOLTS Job Openings; Earnings: Carnival
Wednesday, Sept. 30: ADP Employment, GDP Chain Price, PCE Index, Personal Income, Wholesale Inventories, Chicago PMI; Earnings: Micron Technology
Thursday, Oct. 1: Initial Claims, S&P Global PMI Manufacturing, Construction Spending, ISM Manufacturing; Earnings: Nike, McCormick
Friday, Oct. 2: Hourly Earnings, Workweek, Manufacturing Payrolls, Nonfarm Payrolls, Unemployment Rate, Durable Orders, Factory Orders
