Stocks Settle Mixed as Tech Rally Loses Steam

The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.43%.  December E-mini S&P futures (ESZ25) rose +0.01%, and December E-mini Nasdaq futures (NQZ25) fell -0.44%.

Stock indexes settled mixed on Friday, with the S&P 500, Nasdaq 100, and Dow Jones Industrials posting new all-time highs.  Stock indexes initially moved higher on Friday as chipmakers and AI-infrastructure stocks gained, driven by optimism that growth in the AI sector will translate into corporate profits.  However, higher bond yields on Friday sparked long liquidation in interest rate-sensitive technology stocks.  The 10-year T-note yield rose +4 bp to 4.12% on hawkish comments from Chicago Fed President Austan Goolsbee and Dallas Fed President Lorie Logan, who cautioned against additional rate cuts from the Fed. 

Stock indexes also fell back from their best levels on Friday to trade mixed after the Sep ISM services index dropped more than expected to a 4-month low.  Also, signs of price pressures in the service sector weighed on bond prices and stocks after the Sep ISM services price paid sub-index unexpectedly increased. Finally, the US government shutdown for a third day on Friday dented market sentiment.

The government shutdown means a delay in the release of government reports, including Friday's monthly payroll report.  A prolonged shutdown could also delay the government's inflation data, scheduled for release on October 15.  The White House has warned that if the government shutdown lingered, it would trigger widespread dismissals of employees in government programs that don't align with President Trump's priorities.  Bloomberg Economics estimates that 640,000 federal workers will be furloughed during a shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

The US Sep S&P composite PMI was revised upward by +0.3 to 53.9 from the previously reported 53.6.

The US Sep ISM services index fell -2.0 to a 4-month low of 50.0, weaker than expectations of 51.7. The Sep ISM services price paid sub-index unexpectedly rose +0.2 to 69.4, higher than expectations of a decline to 68.0.

Chicago Fed President Austan Goolsbee cautioned against the Fed front-loading too many interest rate cuts, saying, "The uptick of inflation that we've been seeing, coupled with the jobs, payroll numbers deteriorating, has put the Fed in a bit of a sticky spot where you're getting deterioration of both sides of the mandate at the same time."

Dallas Fed President Lorie Logan said the Fed "needs to be cautious about further rate cuts from here," as inflation is further away from the Fed's target than the maximum employment goal.

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 a 98% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Overseas stock markets on Friday settled higher.  The Euro Stoxx 50 closed up +0.10%.  China's Shanghai Composite did not trade and is closed for the week-long Lunar New Year holiday.  Japan's Nikkei Stock 225 climbed to a 1-week high and closed up +1.85%.

Interest Rates

December 10-year T-notes (ZNZ5) on Friday closed down by -8 ticks.  The 10-year T-note yield rose +3.6 bp to 4.119%.  Dec T-notes gave up an early advance and turned lower Friday due to hawkish comments from Chicago Fed President Austan Goolsbee and Dallas Fed President Lorie Logan, who cautioned against additional Fed interest rate cuts.  T-notes were also pressured after the Sep ISM services price paid sub-index unexpectedly rose, a sign of price pressures in the service sector.

Dec T-notes initially moved higher on Friday and posted a 1-week high, and the 10-year T-note yield fell to a 2-week low of 4.077%.  T-notes garnered early support on Friday after the Sep ISM services index fell more than expected to a 4-month low.  The ongoing US government shutdown is also bullish for T-notes on concerns that a protracted shutdown could weaken the economy, a supportive factor for T-notes. 

European government bond yields moved lower on Friday.  The 10-year German bund yield fell to a 2-week low of 2.690% and finished down -0.2 bp at 2.698%.  The 10-year UK gilt yield fell -2.0 bp to 4.690%.

Eurozone Sep PPI fell -0.3% m/m and -0.6% y/y, weaker than expectations of -0.1% m/m and -0.4% y/y, with the -0.6% y/y fall the largest year-over-year decline in 9 months.

The UK Sep S&P composite PMI was revised downward by -0.9 to a 5-month low of 50.1 from the previously reported 51.0.

ECB Governing Council member Wunsch stated that ECB policymakers have found the "perfect calibration" for interest rates and policy settings, which are appropriate to ensure that consumer prices rise in line with the 2% target in the medium term.

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

Humana (HUM) closed up more than +10% and added to Thursday's +4% jump to lead managed health care companies higher and gainers in the S&P 500 after it reaffirmed its earnings guidance for 2025.  Also, Centene (CNC) closed up more than +5%, and Cigna Group (CI) closed up more than +4%.  In addition, Molina Healthcare (MOH) and Elevance Health (ELV) closed up more than +3%, and UnitedHealth Group (UNH) closed up more than +1% to lead gainers in the Dow Jones Industrials.

Fair Isaac Corp (FICO) closed up more than +3%, adding to Thursday's +17% surge after announcing it will sell credit scores directly to mortgage resellers, reducing their reliance on credit bureaus.

Knight-Swift Transportation Holdings (KNX) closed up more than +3% after Stifel upgraded the stock to buy from hold with a price target of $45.

Zillow Group (ZG) closed up more than +2% after Gordon Haskett upgraded the stock to buy from hold with a price target of $90. 

Freeport-McMoRan (FCX) closed up more than +2% after UBS upgraded the stock to buy from neutral with a price target of $48.

Entergy (ETR) closed up more than +1% after Scotiabank upgraded the stock to sector outperform from sector perform with a price target of $105. 

Occidental Petroleum (OXY) closed up more than +1% after Mizuho Securities upgraded the stock to outperform from neutral with a price target of $60. 

US-listed Macau-linked casino stocks retreated on Friday after Citigroup said national passenger data from China's travel ministry for the first two days of the Golden Week holiday was weaker than expected.  Wynn Resorts Ltd (WYNN) and Las Vegas Sands (LVS) closed down more than -7%.  Also, MGM Resorts International (MGM) closed down more than -2%.

Chip makers and AI-infrastructure stocks gave up early gains and turned lower on Friday, which weighed on the Nasdaq 100.  KLA Corp (KLAC) closed down more than -3%.  Also, Applied Materials (AMAT) closed down more than -2% after saying its net revenue for fiscal year 2026 is set to decrease by $600 million due to a new rule by the US Department of Commerce's Bureau of Industry and Security.  In addition, Advanced Micro Devices (AMD) closed down more than -2%, and Intel (INTC) and Texas Instruments (TXN) closed down more than -1%.   

Weakness in most of the Magnificent Seven technology stocks was a drag on the overall market.  Meta Platforms (META) closed down more than -2%, and Tesla (TSLA) and Amazon.com (AMZN) closed down more than -1%.  Also, Nvidia (NVDA) closed down -0.67%.

Palantir Technologies (PLTR) closed down more than -7% to lead losers in the S&P 500 and Nasdaq 100 after Reuters reported that an Army memo stated the company's battlefield communications network has serious "fundamental security" flaws.

Hecla Mining (HL) closed down more than -1% after Roth Capital Partners downgraded the stock to sell from neutral with a price target of $8.75.

Earnings Reports(10/6/2025)

Aehr Test Systems (AEHR), Constellation Brands Inc (STZ).