Stocks Finish Higher as Bond Yields Slip and Chip Makers Climb

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.44%.  December E-mini S&P futures (ESZ25) rose +0.24%, and December E-mini Nasdaq futures (NQZ25) rose +0.42%.

Stock indexes on Monday settled higher.  The broader market rose and bond yields fell on Monday, as hopes grew that weak US labor market news this week, including the August JOLTS job openings, the September ADP employment change, and the September nonfarm payrolls, would prompt the Fed to continue cutting interest rates.  The 10-year T-note yield fell -3 bp to 4.14%. 

Stock indexes are in the midst of a 5.5-month-long rally that pushed the S&P 500, the Dow Jones Industrial Average, and the Nasdaq 100 to record highs last week, driven by strong earnings growth, the Fed’s easing measures without a recession, and global fiscal policy easing.  Stocks extended their gains on Monday after US Aug pending home sales rose more than expected by the most in 5 months. 

Chipmakers rose on Monday to lead technology stocks higher.  However, weakness in energy producers limited gains in the overall market after the price of WTI crude oil tumbled by more than -3%.

The price of COMEX gold (GCZ25) rose more than 1% Monday, reaching a record above $3,800 an ounce, driven by the outlook for additional Fed easing, uncertainty tied to US tariffs, and the increased risk of a US government shutdown. 

US Aug pending home sales rose +4.0% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 5 months.

The US Sep Dallas Fed manufacturing activity survey unexpectedly fell -6.9 to -8.7, weaker than expectations of an increase to -1.0.

Fed comments on Monday were mixed.  On the dovish side, New York Fed President John Williams said inflation risks have receded, while those for employment have moved up, making it sensible for the Fed to lower interest rates.  Conversely, Cleveland Fed President Beth Hammack said inflation “is not really getting back down to the Fed’s objective of 2% until the end of 2027 or early 2028” and that “we really need to maintain a restrictive stance for policy.”

A potential negative factor for market sentiment is the likelihood that the US government will shut down on Wednesday if lawmakers fail to pass a spending bill or continuing resolution (CR) by then.  Congressional leaders are scheduled to meet with President Trump on Monday to negotiate a short-term spending bill.  The White House warned last Wednesday that a shutdown would trigger widespread dismissals of employees in government programs that don’t align with President Trump’s priorities.

Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, more than 22% of companies in the S&P 500 provided guidance for their Q3 earnings results that are expected to beat analysts’ expectations, the highest in a year.  Also, S&P companies are expected to post +6.9% earnings growth in Q3, up from +6.7% as of the end of May. 

The markets are pricing in an 89% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Market focus this week will be on any new trade or tariff news. On Tuesday, the Sep MNI Chicago PMI is expected to climb by +1.8 to 43.3.  Also, Aug JOLTS job openings are expected to slip -11,000 to 7.170 million.  Finally, the Conference Board’s Sep consumer confidence index is expected to fall -1.4 to 96.0.  On Wednesday, the Sep ADP employment change is expected to increase by +50,000.  Also, the Sep ISM manufacturing index is expected to rise by +0.3 to 49.0.  On Thursday, weekly initial unemployment claims are expected to increase by +7,000 to 225,000.  Also, Aug factory orders are expected to increase by +1.4% m/m.  On Friday, Sep nonfarm payrolls are expected to increase by +50,000, and the Sep unemployment rate is expected to remain unchanged at 4.3%.  Also, Sep average hourly earnings are expected to increase by +0.3% m/m and +3.7% y/y.  Finally, the Sep ISM services index is expected to slip -0.3 to 51.7.

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 climbed to a 6.75-month high and closed up +0.13%.  China’s Shanghai Composite rose to a 1-week high and closed up +0.90%.  Japan’s Nikkei Stock 225 fell to a 1-week low and closed down -0.69%.

Interest Rates

December 10-year T-notes (ZNZ5) on Monday closed up +8 ticks.  The 10-year T-note yield fell -3.7 bp to 4.139%.  T-notes moved higher Monday on expectations that this week’s US labor market news will show weakness in the labor market that will allow the Fed to keep cutting interest rates.  Also, Monday’s -3% plunge in WTI crude oil prices lowered inflation expectations, a supportive factor for Fed policy and T-note prices, as the 10-year breakeven inflation rate fell to a 1.5-week low of 2.357%.  T-notes fell back from their best level after Cleveland Fed President Beth Hammack said she was still worried about inflation and argued against additional Fed rate cuts. 

European government bond yields on Monday moved lower.  The 10-year German bund yield fell to a 1-week low of 2.706% and finished down -3.8 bp at 2.707%.  The 10-year UK gilt yield fell -4.6 bp to 4.700%.

Eurozone Sep economic confidence unexpectedly rose +0.2 to 95.5, stronger than expectations of 95.3. 

ECB Governing Council member Makhlouf said the ECB is “near the bottom” of its rate-cutting cycle and policymakers need to remain vigilant because the full impact of US tariffs “is still to feed through” to European Union imports.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Chipmakers moved higher on Monday, providing a boost to the overall market.  GlobalFoundries (GFS) and Micron Technology (MU) closed up more than +3%.  Also, Lam Research (LRCX) closed up more than +2% after Deutsche Bank upgraded the stock to buy from hold with a price target of $150.  In addition, Nvidia (NVDA) closed up more than +1% to lead gainers in the Dow Jones Industrials.  Finally, Advanced Micro Devices (AMD) and ASML Holding NV (ASML) closed up more than +1%. 

Energy producers and energy service providers retreated on Monday after the price of WTI crude oil fell by more than 3%.  Diamondback Energy (FANG) and Devon Energy (DVN) closed down more than -3%.  Also, Chevron (CVX) closed down more than -2% to lead losers in the Dow Jones Industrials.  In addition, ConocoPhillips (COP) and Exxon Mobil (XOM) closed down more than -2%.  Finally, APA Corp (APA), Marathon Petroleum (MPC), Schlumberger (SLB), Phillips 66 (PSX), and Valero Energy (VLO) closed down more than -1%.

Merus NV (MRUS) closed up more than +35% after Genmab announced a deal to acquire the company for $8 billion or $97 per share. 

Robinhood Markets (HOOD) closed up more than +12% to lead gainers in the S&P 500 after CEO Tenev said his customers have now transacted more than 4 billion contracts on prediction markets, of which 2 billion were made in Q3 alone.

Western Digital (WDC) closed up more than +9% to lead gainers in the S&P 500 after Rosenblatt Securities raised its target on the stock to $125 from $90. 

AppLovin (APP) closed up more than +6% to lead gainers in the Nasdaq 100 after Phillip Securities initiated coverage on the stock with a recommendation of accumulate with a price target of $725.

Kellanova (K) closed up more than +5% after Capital Forum said the European Union is “leading towards clearing” Mars Inc.’s acquisition of the company.   

Oklo (OKLO) closed up more than +5% after Barclays initiated coverage on the stock with a recommendation of overweight with a price target of $146. 

Electronic Arts (EA) closed up more than +4% after a consortium comprised of PIF, Silver Lake, and Affinity partners acquired the company for $55 billion or $210 per share.

MoonLake Immunotherapeutics (MLTX) closed down more than -89% on disappointing late-stage clinical trial data on the company’s experimental drug to treat the skin condition known as hidradenitis suppurativa. 

Williams-Sonoma (WSM) closed down more than -4% to lead losers in the S&P 500 after President Trump threatened additional tariffs on furniture imports.  RH (RH) also closed down more than -2% on the news.

Warner Bros Discovery (WBD) closed down more than -3% to lead losers in the Nasdaq 100 on concern that President Trump’s proposed 100% tariff on movies made overseas will likely raise programming budgets for movie studios.

Western Alliance Bancorp (WAL) closed down more than -1% after Wells Fargo Securities downgraded the stock to underweight from equal weight. 

Choice Hotels (CHH) closed down more than -1% after Bank of America Global Research downgraded the stock to underperform from buy with a price target of $110. 

Earnings Reports(9/30/2025)

Lamb Weston Holdings Inc (LW), NIKE Inc (NKE), Paychex Inc (PAYX), United Natural Foods Inc (UNFI).