Week 40 marked the end of the third quarter, delivering mixed but ultimately resilient results for US equities as the market digested a complex backdrop of elevated yields and shifting macro data. The S&P 500 ended Q3 up 2.0% for the quarter and sits just shy of its 52-week high, largely driven by the heavy weighting of a concentrated group of large-cap growth and technology names. The Nasdaq 100 led the major indices, hitting a record high by October 2nd after softer than expected labor data sparked a rally. To kick off the new month, stocks absorbed a bond market shock where the US 10-Year Treasury yield touched a 24-year high of 5.34% before retreating. Oil prices also saw a notable rise, with Brent crude surpassing $103 per barrel.
Against this backdrop, our portfolio remains in a steady holding pattern. There are no major catalysts for our core positions this week, and we are simply maintaining our current investments while we wait for the third-quarter earnings season to provide the next major fundamental updates.
Week 40 Recap
US Equities and the Quarter-End Close
The stock market delivered resilient results for the week of September 28th to October 2nd, and the underlying trend remained constructive. The S&P 500 finished the third quarter strongly, ending near its record high despite a slight 0.5% dip for the month of September. The market's heavy reliance on megacap technology continues to dictate the index's direction, and tech leadership was evident as the Nasdaq 100 posted record highs by Friday.
Heading into October, equities absorbed a massive move in the bond market. The US 10-Year Treasury yield touched 5.34%, its highest level since April 2002, before retreating to around 5.28% following a massive miss in the September nonfarm payrolls report, which added only 29,000 jobs. This cooling labor data provided some much-needed relief to equity valuation multiples by slashing the odds of an October interest rate hike.
Oil prices also spiked, reflecting ongoing geopolitical tensions and military deployments in the Middle East despite a G7 release of strategic reserves. The resilience of the broad market suggests that institutional investors are not overly eager to de-risk, preferring to stay exposed to the AI-driven tech rally.
Gold and Silver: Yield Headwinds Persist
The precious metals complex traded choppily during the week, heavily influenced by the movements in the bond market. While the 10-year yield retreated late in the week, it touched 24-year highs, which continues to act as a headwind for non-yielding assets like gold and silver. Spot gold and silver held key technical support levels but lacked the momentum to break out into new highs.
Our gold and silver miner positions have held up remarkably well against the backdrop of high real rates. The fundamental thesis remains entirely intact. Central bank demand for physical metal remains robust, and the major miners continue to generate massive free cash flow at current spot prices. We are holding our positions and view any further yield-driven weakness as an opportunity rather than a reason to exit.
China Internet: Targeted Stimulus and Consolidation
Chinese tech stocks faced a challenging quarter but caught a potential tailwind late in the week following Beijing's September 29th targeted stimulus package. Rather than digesting massive AI rallies from the late summer, the broader Chinese market slumped heavily in Q3, with major indices tracking their largest quarterly drops in years.
However, the new stimulus measures introduced a 25 basis point policy lending rate cut and widened credit facilities specifically for computing, communications, and tech. Alibaba and Tencent experienced a quiet week of consolidation but are well positioned to benefit from this cheaper cloud and AI capital expenditure funding.
Neither stock faced material negative news flow during the week. Both names are holding their established support bases near 52-week lows, and trading volumes have normalized. The lack of headline volatility is exactly what we want to see heading into the third-quarter earnings cycle, as it allows the fundamental business execution to take center stage.
Week 41 Outlook
Week 41 brings a transition into the heart of the fourth quarter, with an economic calendar that will test the market's conviction regarding the Federal Reserve's policy path and the resilience of the US consumer. The focus shifts squarely to upcoming third-quarter earnings, with October shaping up to be a massive month as megacap tech giants like Alphabet, Amazon, and Microsoft report their results, which will heavily influence overall market sentiment and AI capital expenditure narratives.
Key Events
- Monday, October 5th: The ISM Services PMI will be released at 10:00 a.m. ET. This will provide a crucial read on the health of the US services sector, which makes up the vast majority of the domestic economy.
- Wednesday, October 7th: The Federal Reserve will release the FOMC Minutes from its September 15-16 meeting at 2:00 p.m. ET. This will be the most scrutinized document of the week as investors parse the committee's debate on inflation and future rate decisions.
- Thursday, October 8th: Weekly initial jobless claims data will be released at 8:30 a.m. ET, providing the highest-frequency read on labor market churn following last week's soft payrolls report.
- Friday, October 9th: The week concludes with the preliminary University of Michigan Consumer Sentiment survey at 10:00 a.m. ET. Inflation expectations within this report will be closely watched by the Fed.
Four Macro Threads to Watch
First, the Federal Reserve's communication remains the dominant market driver. The September FOMC minutes will reveal the depth of the committee's concern regarding sticky inflation versus a cooling labor market. Any hints of a unified hawkish tilt or disagreements on the terminal rate will immediately reprice the yield curve. With the 10-year yield backing off its 24-year highs following Friday's weak jobs data, the bond market is looking for confirmation that the peak in rates is behind us.
Second, the US services sector must hold the line. Manufacturing has shown signs of stabilization, but the US economy lives and dies by the services sector. The ISM Services print on October 5th needs to remain firmly in expansion territory to sustain the soft landing narrative that has supported equity multiples throughout the third quarter.
Third, the labor market has officially cooled. The October 2nd nonfarm payrolls report showed only 29,000 jobs added and an uptick in unemployment to 4.2 percent. Focus now shifts to the weekly jobless claims on October 8th to determine if the employment picture is deteriorating too rapidly. A modest cooling was the Fed's desired outcome to quell wage inflation, but further sharp spikes in jobless claims could spark recession fears and force a flight to safety.
Fourth, the tech earnings season is the ultimate catalyst. October is historically a strong month for equities, and this year is no exception as megacap tech companies prepare to report their third-quarter earnings. The market is desperate for clarity on whether AI capital expenditure is translating into tangible cloud and software revenue growth. The results from the hyperscalers will set the tone for our own portfolio's tech-adjacent positions, including the AI thesis at Alibaba.
Positioning Into Week 41
From a portfolio perspective, there is very little to report this week, which is exactly how we prefer it. There is no breaking news, no urgent macro shifts, and no immediate actions planned for our current holdings.
We are simply holding our positions in both our precious metals miners and our core China internet equities. The lack of positive or negative news flow allows us to remain patient.
We are entirely focused on the upcoming third-quarter earnings season. We are waiting for the management teams at our portfolio companies to report their numbers and provide guidance for the remainder of the year.
Until those earnings reports hit the tape, our strategy remains strictly informative and observational. We are holding our current investments, letting the macroeconomic data play out, and preparing to act only when the fundamental data from the Q3 prints dictates a change in our thesis. For now, we sit tight and let the market do the work.