- The S and P 500 fell 0.2% on Friday, the Nasdaq Composite slipped 0.1% and the Dow Jones Industrial Average dropped 195 points, or 0.4%. For the week the Dow lost 2%, its third consecutive weekly decline, while the S and P 500 fell 0.5% and the Nasdaq rose 0.3%.
- The 10-year Treasury yield climbed more than 5 basis points to 5.00%, returning above that threshold after easing Thursday. It had reached its highest level since July 2007 earlier in the week.
- West Texas Intermediate crude fell about 1% but stayed above $100 a barrel, and Brent was marginally lower at around $104. Both remain well above where they traded before the current supply disruption.
- Markets rebounded Thursday, led by technology, after the Federal Reserve quarter-point increase and the signal of at least one more this year had pushed the major averages down on Wednesday.
What Happened?
Equities closed out a volatile week shaped by rising Treasury yields, elevated oil and the first Federal Reserve rate increase in three years. Scott Welch, chief investment officer at Certuity, said the hike removed some uncertainty but does not believe it was a single adjustment. He expects at least one more increase in 2026, whether in October or after the elections, and probably another one or two in 2027, with continued upward pressure on Treasury yields and oil prices remaining elevated for the next few months. He described the outlook as a chug-along environment for the rest of the year rather than a bearish one.
Why It Matters?
The spread between the indexes is the useful number this week, not the daily moves. A Dow down 2%, an S and P down 0.5% and a Nasdaq up 0.3% is not a market selling off; it is a market rotating, and the direction of that rotation says investors are treating AI-linked earnings as insulated from the rate cycle while everything else absorbs the damage. That view has a factual basis, since companies funding AI infrastructure through equity and convertible issuance are less sensitive to policy rates than industrial or consumer borrowers. It also concentrates risk in an uncomfortable way. If tightening continues, the cost falls on the rate-sensitive parts of the economy, which are already showing strain in manufacturing and durable goods, while the sector driving both capital spending and electricity demand remains largely untouched by the instrument being used to slow things down. The 10-year at 5.00% deserves attention independently of equities. That is the highest level since July 2007, and it resets the discount rate applied to every long-duration asset, including the AI growth stories currently outperforming. The market has not yet reconciled those two positions: a Nasdaq rising on rate-insensitive earnings and a 10-year yield that mechanically reduces the present value of earnings arriving years from now.
What Next?
The October Federal Reserve meeting is the first test of the Welch view, and he has flagged that the timing may slip past the elections, which makes December the alternative. Watch whether the 10-year holds above 5.00% or retreats, since that level has now been touched twice and a sustained break higher would pressure the equity rotation currently supporting technology. Oil is the other variable: both benchmarks eased slightly but remain above $100 and $104, and the supply situation is unresolved, so any renewed disruption feeds directly back into yields. The index divergence is the cleanest thing to monitor, because a Dow on a fourth straight weekly decline while the Nasdaq keeps gaining would confirm the rotation is structural rather than a week of noise. Third quarter earnings season will show whether the assumption of rate-insensitive AI profits survives contact with reported numbers.
Affected Tickers and Coins: ZN, CL, BZ
Source: CNBC
