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Mega-cap tech carries the Nasdaq to a record against a 5.31% 10-year yield
Tech heavyweights including Nvidia, Meta and Microsoft lifted the Nasdaq about 1% to a record on Monday as the 10-year Treasury yield rose to 5.31%. The Dow's much smaller gain puts the rally in a few large stocks, which held up while long-term yields rose even as the odds of a Fed hike fell.
The Investor · Invest desk
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What happened
- The S&P 500 added about 0.7% on the day, while the Dow Jones Industrial Average rose just 0.18%.
- Data released last week showed US job growth slowed more than expected in September, and the two previous months were revised sharply lower.
- The euro fell as much as 0.8% to a 17-month low of $1.1160 on worries over French debt and political gridlock, then recovered to $1.122.
- Brent crude settled $1.93 lower at $100.32 a barrel after Middle East exports rose and Group of Seven nations pledged more supply.
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Why it matters
- cost Money held in the tech leaders gives up a 5.31% 10-year Treasury yield. That is about 32 basis points above France's 10-year yield at its stressed Friday peak.
- constraint Weaker US jobs data cut the odds of an October hike but did not lower the 10-year yield, so a slowing economy is not easing long-term borrowing costs for companies or the Treasury.
- exposure With the Dow barely moving, index gains depend on a few AI-linked companies, and a stumble at Nvidia, Meta or Microsoft would get little support from the rest of the market.
A roughly 1% gain in the Nasdaq against 0.18% for the Dow is a gap of 0.82 percentage points. The tech-heavy index rose more than five times as far as the blue-chip average [3][4][19]. The report credits heavyweight technology companies such as Nvidia, Meta Platforms and Microsoft [2]. It does not include breadth figures, such as advancing against declining shares, so the argument that buyers put their money into a short list depends on that index gap and those names.
Rates moved the opposite way to Fed expectations [5][8]. CME FedWatch put the chance of an October rate increase at about 24%, down from 64% a week earlier, a fall of 40 points [8][20]. The 10-year Treasury yield still rose 3.4 basis points to 5.31% [5]. A December move remains largely priced in [8]. The report ties the pressure on long-term borrowing costs to deteriorating public finances, heavy debt issuance and elevated energy prices [6].
Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, set out the equity case in an email [9]. "Relative equity market calm amid the bond market's 'perfect storm' is understandable, given accelerating economic growth and the AI boom's rate insensitivity," she said [9]. Rate insensitivity is a claim about the earnings of the companies at the center of the AI build-out. Nvidia, Meta and Microsoft, the names credited with Monday's gain, are among them [2].
If the softer jobs data works its way into the long end, the 10-year falls and buying can spread beyond tech. If long yields keep rising on debt supply and energy, investors keep adding to the AI group and buy little else. Or the stress could show up in currencies first. I think the middle case is the one Monday's evidence supports, because the 10-year rose on the same day the market cut its odds of an October hike by 40 points [5][20]. BlackRock Investment Institute strategists see the policy outlook differently [15]. "With markets pricing more Fed tightening than we think will materialize, there is limited scope for a sustained dollar bull run," they wrote in a note on Monday [15].
The view fails in one direction if the 10-year starts following Fed odds lower. It fails in the other if the dollar keeps climbing on European stress. Shalett's team listed dollar strength and currency volatility among its three stress gauges, alongside equity and earnings-revision breadth and high-yield bond spreads [10]. The dollar index rose 0.2% on Monday, helped by the euro's slide and by Treasury yields [12]. The premium on French 10-year debt over German bonds went above 150 basis points on Friday [13]. "France is the real deal in terms of risk premia for the euro," said Neil Wilson, a strategist at Saxo [16].
What to watch
- High-yield bond spreads: if they widen while the dollar is firm, two of Shalett's three stress gauges would be active at once.
- December pricing on CME FedWatch after the next payrolls report, which would show whether BlackRock is right that markets price more tightening than will happen.
- Whether France's parliament waters down the government's deficit-reduction plans, the risk Saxo's Neil Wilson tied to the euro.