Well, another record for the indexes, and within literally a day we were reminded that calm is very much conditional right now.

On October 6, the S&P 500 and Nasdaq once again closed at record highs. AI and chips helped, along with a temporary dip in oil prices and yields. But after that surge, it took literally just a few new signals for sentiment to shift quickly.
The main reason (hardly would I surprise you with this) — oil.

Brent returned to the $100–105 area, and geopolitics is again adding a risk premium. Trump said there will be intensified strikes on Iran; the situation around the Strait of Hormuz remains tense, and supplies from the region have still not returned to pre-war levels. But this is no longer just about Iran.

In recent months, India and some Chinese refineries have been gradually cutting purchases of Russian oil and shifting to the Middle East. The reason is simple: that huge discount everyone was buying Urals for has effectively disappeared. If in July Russia provided about 56% of India’s oil imports, then by September the share fell to roughly 35%.

As a result, buyers who used to sit on cheap Russian oil are now moving into a much tighter market for Middle Eastern crude, putting additional upward pressure on prices. Then the familiar logic kicks in. More expensive oil = again, more fears about inflation.

And if inflation can come back, the market is no longer as confident that the Fed has fully finished with rate hikes. And right now it doesn’t even expect that, even if there is supposed to be a pause in October.

Against this backdrop, the yield on 10-year Treasuries is up again to around 5.3%, and for 30-year Treasuries it’s nearly 5.7%. And this directly hits stocks. Especially companies outside of big tech, which is why Russell 2000 looked weaker than the rest of the market.

Plus, the minutes from the most recent Fed meeting are already out. They revealed an interesting thing: in September, everyone voted for a rate hike, but within the Committee there’s no full agreement on what to do next. Some officials are ready to wait, but most still think another hike by the end of the year may be needed.

So we end the week in some sort of ambiguous way, but I guess we’ve already gotten used to that.

Nikita Guppal | ProInvestments

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