Market Storylines: Oil Swings, Rising Global Yields, AI Selloff + Earnings Ahead

Michael Reinking, Senior Market Strategist at the NYSE, reviews a volatile week as the S&P 500 hit a record Tuesday before rising oil and global yields weighed on stocks. Oil swung over 5% on Strait of Hormuz attacks before easing after President Trump said no Iran strike would come before the midterms. A sharp selloff in AI stocks late Thursday sent the ICE semi index down ~4% and lifted the equal-weight S&P 500 ahead of its cap-weighted peer. Friday's soft jobs report was read as goldilocks, while FOMC minutes showed broad support for September's hike. Looking ahead, inflation data, retail sales and the start of bank earnings take center stage next week.

Hello. I'm Michael Reinking, senior market strategist at the New York Stock Exchange.

There have been no T-1000 sightings yet, so we're here for another episode of market storylines.

And until that happens, we'll be here every week to keep you up to date on the key trends and events driving global markets.

Now, we're recording on Thursday afternoon, on October 8th, in what has been a busy day of headlines. So let's get to it.

Now, last week, Eric rehashed the major themes and performance during Q3, which officially came to the to an end last Wednesday, as did the Yankee season last night.

Now the calendar flipped and we're officially on the home stretch to the end of the year, but three central themes are still the same. Geopolitics, rising yields, and the technology formally known as AI.

Now, last week ended with the release of the BLS employment report. Non-foreign payrolls missed expectations with 29,000 jobs added to the economy, below the 90,000 estimate.

Now there was also a negative revision of 60,000 over the previous two months, leaving the trailing three-month average around 50,000 jobs.

Now, private sector hiring was up 46,000 with healthcare and social assistance accounting for about half of that, while the government hiring fell 17,000.

The household survey was very strong showing an increase of 406,000. However, despite those gains, the unemployment rate ticked up to 4.2% for a good reason though as the labor participation rate improved to 61.8% from 61.6%.

Now, average hourly earnings came in slightly below expectations.

Now, despite the headline readings, this was kind of a Goldilocks report, suggesting the labor market remains resilient and pretty well balanced.

Now yields initially moved lower, but ultimately ended the day modestly higher. For the week, the two-year yield was down a touch while the long end was up over 10 basis points.

Equity markets rallied on Friday leaving most major indices on either side of unchanged for the week.

Now the S&P 500 closed in the upper half of its recent range between 7600 and 7800, though the equal weight version of the index closed down for its seventh consecutive week.

However, in the back half of the week, as Q4 began, the equal weight and small and midcap indices, which underperformed throughout all of September, started to bounce off their respective 200-day moving averages helped by portfolio rebalancing flows.

Now, this week has been much of the same. Markets got off to a strong start with the S&P 500 hitting a new all-time high on Tuesday, but started to give back some of those gains with the same two suspects driving much of that weakness.

Everyone say it together now. Rising oil and global yields.

Now, however, there is never a dull moment and there have been a flurry of headlines just before we recorded today's episode, which are shifting market dynamics in real time.

Now, oil had pulled back modestly to start the week after the IEA agreed to release reserves last week, Saudi Arabia launched an assault to recapture Houthi-held territory around the straight over the weekend, reports that flows were once again approaching pre-war levels and some negotiations were happening in the background.

However, since then, tankers have been attacked in the straight of Hormuz, Houthis attacked an airport in Saudi Arabia, and there have been press reports that the administration was preparing for a major combat operation after moving additional military assets into the region last week.

Now, oil prices were up over 5% today, but just before we came on, President Trump took to Truth Social saying there won't be an attack on Iran before midterms and oil prices have backed off a couple of dollars.

Now the pullback in oil is also helping yields to pull back. This morning, 10 and 30-year yields were hitting new highs year to date, but have since reversed over 10 basis points intraday.

And before moving to equity markets, this week's main economic data was the ISM services which continued to point to strong economic activity but underlying pricing pressures.

Now this week's FOMC minutes show that there was broad support for the September hike and most believe an additional hike later this year would be appropriate.

Now, on that front, we have heard from two of the more influential officials over the last two weeks, New York Fed President Williams and Christopher Waller, who both suggested that the September hike after the September hike, there was no urgency to tighten further, giving the committee some time to monitor incoming economic data, which has helped the probability for an October hike to fall below 20%.

Now the Trump proclamation wasn't the only headline shifting the market dynamics this afternoon.

Now just after his post, the FT ran a story suggesting that according to sources that OpenAI's annualized revenues in financial documents were $20 billion below the $70 billion level the company had signal to investors recently.

Now I would note there are already reports suggesting the higher number included, you know, kind of revenue sharing agreements. So this is kind of happening, you know, a shifting here in real time.

Nonetheless, you know, this headline has caused a sharp sell-off across the AI complex.

The this combination of headlines is also causing some rotation within the market.

Now, as we mentioned at the top of the show, at the end of last week, we started to see some rotational activity and improvement in breath in the market.

There were broad-based gains early this week, but as rates moved higher, small and mid-cap indices had turned lower retesting last week's lows this morning, but they're now are trying to turn positive on the day and the week.

Now, meanwhile, tech, which was outperforming, has turned lower with the ICE semiconductor index down around 4% today.

And the market cap weighted S&P 500 is still holding on to slight gains for the week, but the equal weight is now out performing up nearly 1%.

Now, within the S&P 500, energy and consumer staples are leading to the upside, both up around 4%. And until today, utilities have been the best performing sector as IPPs were moving sharply higher after Vistra got $4 billion in funding from the government to upgrade its nuclear fleet and expand capacity, while constellation energy announced a 20-year energy supply agreement with Google following a similar deal with Amazon recently.

However, both stocks are down over 5% today as the wind has come out of the SI sales.

Both Infotech and Industrials have turned also turned lower for the week.

Now the US dollar index hit a new year to date high with much of that weakness coming by way of the euro as there as there continues to be building concerns around fiscal deficits in the region, which has caused spreads to blow out in France and Italy.

And the dollar strength has put pressure on precious metals, which are down on the week, though gold is out performing. This is also seems to undercut some of the recent strength in crypto markets.

Now earlier this week, Bitcoin and Ethereum were testing their recent September highs, but have turned sharply lower as there have been over a billion dollars of long liquidations over the last two days.

Bitcoin is down around 5% for the week, trying to hold 80,000 and it's 50-day moving average while Ethereum is off about 10% for the week, breaking below its 50-day, trading back down to 2400.

Now as we look forward to next week, the key economic data will be inflation data and retail sales on Wednesday and Thursday. The IMF World Bank meetings begin on Monday with Fed Chair Warsh expected to speak at the end of the week.

It is also the official start of earning season with major banks starting to report on Tuesday, so hopefully this can take some of the focus off the macro.

That's going to do it for this week. Remember you can watch market storylines on tv.nyse.com or on the NYSE YouTube channel. Thanks for joining me. I'm Michael Reinking. We'll see you next week.