Big Tech Shrugs Off the Turmoil In Debt Markets After U.S. Jobs Report

In this first week of October, headlines were mainly dominated by events in the bond markets as investors continued to endorse a “higher for longer” story regarding interest rates. This led to a global rise in long-dated government bond yields. 30-year U.S. Treasury yields closed at 4.97% after topping 5.03% for the first time in 16 years. The current average interest rate for the benchmark 30-year fixed mortgage is now above 7.8% - the highest level in 23 years. In the short run, this situation is undoubtedly painful for most asset classes. However, the recent surge in debt cost might tighten financial conditions enough to slow down economic growth and potentially mark the final phase of this tightening cycle.

The job report's release revealed that the U.S. economy generated 336,000 jobs in September, as per the Labor Department's announcement on Friday. This figure significantly surpassed the projected 170,000 jobs. On the flip side, average hourly earnings experienced an unexpected slowdown to 0.2% for the month, and 4.2% on an annualized basis in September. This alleviated concerns about wage and inflation escalation due to tight labour market conditions. Tech rallied on the news pushing the broader market higher, with the S&P 500 up 0.48% for the week, and the Nasdaq Composite up 1.60%, underpinned by tech giants: Apple Inc (NASDAQ:AAPL up 3.67%), Alphabet Inc (NASDAQ:GOOGL up 5.22%), Meta Platforms (NASDAQ:META up 5.07%), Microsoft Corporation (NASDAQ:MSFT up 3.65%), Nvidia (NASDAQ: NVDA up 5.20%). By contrast, small cap stocks plunged with the Russell 2000 down 2.22%.

Over the next few weeks, the upcoming U.S. earnings season, commencing with banks on Friday, October 13th, will provide insight into the financial status of many of the world's largest businesses. Despite apprehensions linked to inflation and escalating interest rates, U.S. consumers have shown notable resilience to date. With a considerable amount of personal savings accrued during the Covid pandemic now exhausted, investors are keenly awaiting to see whether businesses have been successful in sustaining growth in earnings.

Furthermore, the inflation reports for the Consumer Price Index and Producer Price Index are scheduled to be released next week. This data could be pivotal for the Federal Reserve's decision on whether to maintain or increase interest rates at the next policy meeting which concludes on November 1.

Outside of the United States, stock indices finished the week in the red, hit by rising Treasury yields. 10-year German bund yields gained 4 basis points to 2.88%, after hitting the 3% threshold on Wednesday for the first time since 2011. Similarly, U.K. gilt yields soared to a two-decade high of 5.03%. The MSCI EMU slid 1.20% accordingly while the FTSE lost 1.49%.

In Asia, stocks indices followed the same trend with Japan’s Nikkei down 2.71%. The Hang Seng index fell 1.82%.

Tech behemoths as haven assets

Two sectors spurred the S&P benchmark index to conclude the week on a positive note: information technology which surged by 2.94%, and communication services, up 3.05%. Their performance once again shows the tech giants’ dominance and contrasts with those of other sectors. Eight out of eleven S&P sectors recorded a negative performance for the week.

The energy sector was the worst performer (down 5.39%), with WTI crude oil prices plummeting nearly 9%, their sharpest weekly loss since April. This may be short-lived as oil prices have started rebounding strongly following the Hamas attack on Israel over the weekend, and concerns over oil output. Rate-sensitive sectors continued to plunge with utilities down 2.90% and real estate down 1.53% as Treasury yields reached their highest levels in over a decade and a half.

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