Records on Narrow Shoulders as the 10-Year Yield Tops 5.3%

Dear readers,

The S&P 500 closed above 7,800 for the first time on Tuesday, and the bond market did not applaud. The ten-year Treasury yield sits at a good 5.3 percent, the highest since 2002 according to market watchers. Yesterday we flagged the Fed minutes as a possible mover for rate expectations. They are due at 2 p.m. Eastern (8 p.m. German time) and will be the next test of how much the stock market can take.

A Record Few Stocks Are Carrying

The index looks healthier than the market behind it. By Citadel data, only about 25 percent of S&P 500 stocks were trading above their 50-day moving average at the end of the third quarter.

The S&P 500 gained roughly 2 percent over the quarter, while the equal-weighted index lost 2 percent and small caps in the Russell 2000 fell 7 percent. The ten largest stocks account for about 41 percent of the index weight.

Fidelity strategist Jurrien Timmer calls it a “silent correction.” Profits are running, with index earnings up around 30 percent from a year ago, but valuations are shrinking. The forward price-to-earnings ratio fell from 23.5 to about 19.5 within a year.

For your portfolio, that means the headline index says little if your holdings are spread more broadly. For the third quarter, FactSet expects earnings growth of 29.3 percent. As the reporting season gets under way, that yardstick will apply to every sector, not just technology.

Rate Hopes: October Written Off, December Priced In

In September the Fed raised rates unanimously by 25 basis points to a range of 3.75 to 4.00 percent, its first hike since 2023. For the October 27-28 meeting, markets now see only about a 22 percent chance of another step, down from roughly 51 percent a week ago. For December, the probability is just under 69 percent.

Labor market weakness explains the shift. The economy added only 29,000 jobs in September, and unemployment rose to 4.2 percent. Inflation, by contrast, is stubborn: core PCE stood at 3.0 percent in August. In September, 16 of 18 policymakers still expected a hike by year-end. Lorie Logan considers at least two more steps necessary, while John Williams and Philip Jefferson see no urgency.

That split is the real information the minutes should reveal. A “hawkish” tone would push yields higher just as the US government auctions $39 billion in ten-year notes. Gold is feeling the pressure, at about $4,100 an ounce, well below its January high of roughly $5,600.

Europe is not spared. The yield on ten-year German Bunds rose to about 3.5 percent, and the spread between French and German government bonds widened to around 139 basis points. Worries about French public finances and fresh tanker attacks in the Persian Gulf, with Brent above $100, weighed on the DAX. It still holds above 25,000 points.

Software and AI Advertising: Zeta Goes Shopping

Zeta Global made two acquisitions within a few days. On October 5 it bought the AI company Senso, now Digital Audience, to strengthen its data and AI infrastructure. The deal can be funded from a $1 billion credit line signed in July, which was undrawn at closing.

Should investors sell immediately? Or is it worth buying Zeta Global?

The stock is up slightly at about $33 and well ahead of where it started the year. RBC raised its price target to $40 on October 5, and D.A. Davidson followed on October 6 with $38. The analyst average of about $33 already matches the share price, so the latest upgrades are running ahead of consensus.

Buyers here are betting on the integration of the acquisitions, not on a cheap valuation.

Roblox sits on the losing side. The stock fell as much as 8 percent at one point and is down about 5 percent now. Google and Unity plan to build an AI platform together that lets users create games without programming skills. That hits Roblox’s model of user-generated games head-on.

Power for the Cloud: Constellation and the Hyperscalers

The data center boom is turning into a question of energy. Constellation Energy signed a 20-year agreement with Google for 890 megawatts of nuclear power, tied to investments of more than $4.3 billion. The stock jumped about 15 percent on Tuesday. Vistra gained 10.7 percent after receiving US government loans of $4 billion for nuclear plants.

Constellation is giving back about 2.6 percent in trading now. Over twelve months and year to date, the stock is still in the red. That points to a catch-up trade with a slow start, not a runaway winner. The utilities stand to gain from the multibillion-dollar spending of the cloud giants. Amazon alone plans around $200 billion for 2026.

SpaceX shows what the buildout costs. According to Bloomberg, the company wants to raise about $40 billion for Nvidia chips, $10 billion through bank loans and $30 billion through bonds. With ten-year yields above 5.3 percent, capital for projects like this gets noticeably more expensive.

Crypto: Leverage, Not Demand

Yesterday we named $84,000 as Bitcoin’s support level. It has given way. Bitcoin slipped below that mark overnight and trades at about $83,400, while Ether lost almost 5 percent recently.

Within 24 hours, leveraged bets of a good $550 million were forcibly liquidated, almost all of them long positions. Oil prices, higher yields and Fed uncertainty set it off. Over twelve months Bitcoin is still down about 31 percent. The next holding zone is $82,000 to $83,000.

The Takeaway

The Fed minutes set the tone tonight, and on October 14 the US inflation report for September follows. If yields stay high, narrowly supported indexes and growth stocks will struggle alike. With Zeta, check whether the recent price target increases are already in the price.

Best regards,
The StocksToday.com Editorial