With little on the calendar next week before the start of third quarter earnings season, investors will likely remain under the thrall of the two forces buffeting the current market: higher oil prices and higher yields. Wall Street got a taste this week of what a reprieve on both fronts could mean for the broader stock market. On Friday, stocks rallied as yields retreated, following a surprisingly weak September jobs report that suggested the Federal Reserve may stay on hold at this month’s policy meeting. At the same time, oil prices also pulled back following reports that the European Union is considering a release of strategic fuel reserves. “That one-two punch of higher energy prices and higher Treasury yields has certainly kept investors on the sidelines over the course of the last month,” said Art Hogan, chief market strategist at B. Riley Wealth. Tech was an especially bright spot in the market, with the Nasdaq Composite climbing to a fresh high, powered by a record in Nvidia and a general revival in semiconductor makers following Micron Technology ‘s blowout results. But much of the investable universe ended the week with losses, as a five-week-long global bond rout and crude oil near $100 a barrel hurt the parts of the market most sensitive to interest rates and the economy. The Dow Jones Industrial Average, for example, lost 1.3% this week, while the S & P 500 was weaker by 0.3%. Washed out October could give investors some reason for hope, however. While it’s renowned for some of the worst market plunges in history, it’s also the best month of the year for the major averages during midterm election years. The Stock Traders’ Almanac shows an average 3% gain in both the S & P 500 and the Dow Industrials in midterm election year Octobers since 1950. But a key question this month will be whether any strength in stocks will broaden out to reach the rest of the market untouched by AI, given how narrow this year’s leadership has been. The S & P 500 ended last month near all-time highs, with tech leading the way. But, a look beneath the surface shows that three-quarters of the index was actually lower — a possible reflection of a broken market. Bespoke Investment Group found that September was actually a historic month of underperformance for the S & P 500 Equal-Weight ETF ( RSP ), which lagged the cap-weighted S & P 500 ETF ( SPY ) by 4.6 percentage points. In data going back to 2003, there were only two other months (March 2023 and March 2020) when the RSP underperformed by a wider margin, the firm said. But poor market breadth could also mean the stock market is becoming washed out, paving the way for a rally heading into the end of the year — especially if earnings come in stronger than expected. Sam Stovall, chief investment strategist at CFRA Research, pointed out that only 12% of the 153 sub industries in the S & P 500 1500, covering the entire large-, mid- and small-cap universe, are trading above their 50- and 200-day moving averages. More importantly, investors traditionally start nibbling at stocks once that momentum number gets below 10%, he said. “Once the sense is that ‘Oh my god, look! We got to get out of here,'” Stovall said, “once a majority of people are making that kind of a decision, then the worst is probably over, or soon to be over.” Week ahead calendar All times ET. Monday, Oct. 5 9:45 a.m. S & P Global PMI Services final (September) 10:00 a.m. ISM Services PMI (September) Tuesday, Oct. 6 8:15 a.m. ADP Weekly Employment change (9/19) Earnings: Constellation Brands Wednesday, Oct. 7 2:00 p.m. FOMC Minutes 3:00 p.m. Consumer Credit (August) Thursday, Oct. 8 8:30 a.m. Initial Claims (10/02) 10:00 a.m. Wholesale Inventories (August) Earnings: PepsiCo Friday, Oct. 9 10:00 a.m. Michigan Sentiment preliminary (October) Earnings: Delta Air Lines
Stocks remain under the thrall of higher yields and higher oil. Here’s what’s ahead
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