Key Notes
- The Nasdaq 100 reached a fresh record on October 2 as the S&P 500 remained within 1% of its peak despite Treasury yields at 2002 highs.
- Citadel Securities recorded $1.93 trillion in broad ETF inflows through September 29, while index concentration masked weakness among many stocks.
- Bank strategists see scope for further gains, but October earnings will test whether AI profit growth can withstand elevated borrowing costs.
Wall Street is heading into earnings season close to record highs despite a surge in Treasury yields, as enthusiasm for artificial intelligence helps large technology companies withstand rising borrowing costs. The contrast is setting up a test of whether profit growth can keep offsetting pressure from the bond market.
The Nasdaq 100 reached a fresh record on Friday, October 2, taking its year-to-date gain to 22%, while the S&P 500 stood less than 1% below its August peak, Bloomberg reported. Those figures describe the Nasdaq 100, rather than the broader Nasdaq Composite.
During the same week, the 10-year Treasury yield exceeded 5.3% and the 30-year yield reached 5.69%, the highest levels for both maturities since 2002. These were levels reached during the week, rather than live quotes for Monday’s session.
Higher Yields Raise the Bar for Stocks
The bond selloff matters for equities through two channels: companies face more expensive financing, and investors can earn higher income from government debt. Higher discount rates also reduce the value assigned today to profits expected many years in the future.
That creates particular pressure on growth companies whose valuations depend on sustained expansion. But it does not establish a mechanical rule that stocks must fall whenever yields rise. If expected earnings increase fast enough, they can counter some of the valuation pressure. AI-related demand has made that balance central to the current market.
Inflation complicates the comparison. The Bureau of Labor Statistics reported that consumer prices rose 3.4% in the year through August. Inflation reduces the purchasing power of interest payments, although subtracting last year’s inflation from a bond yield does not establish its future real return.
Long-term Treasuries also carry price risk before maturity. Higher yields on newly issued debt can mean losses on existing fixed-rate bonds, so their lower credit risk does not make their market value immune to the selloff.
Bank of America Sees a Dot-Com Parallel
Bank of America Corp. (NYSE: BAC) has argued that macroeconomic headwinds may struggle to interrupt enthusiasm for a major technology cycle. In a September 9 note covered by Investing.com, analyst Benjamin Bowler compared the AI rally with the late 1990s, when the Nasdaq advanced despite rising long-term yields and Federal Reserve tightening.
Bowler pointed to technology earnings growing faster than share prices and expected strong rebounds from pullbacks. His argument helps explain why investors might continue buying dips even as the bond market becomes less accommodating.
The comparison also came with a warning: unusually rapid recoveries can be evidence of a bubble forming. Bank of America’s September analysis therefore supported the possibility of further gains while preserving a case for protection against macroeconomic risks.
JPMorgan Expects a Year-End Rebound
JPMorgan Chase & Co. (NYSE: JPM) offered a more recent bullish assessment on October 5. Strategists led by Mislav Matejka said the bond selloff could be approaching oversold territory and equity sentiment had become excessively bearish, according to Investing.com.
The team pointed to stabilizing expectations for further Fed tightening, positive earnings revisions and improving seasonal conditions. It expects the S&P 500 to reach new highs into year-end, with semiconductors among its preferred areas. That is a forecast, contingent on the path of earnings, rates and other risks.
Recent employment data add another consideration. BLS recorded only 29,000 additional payroll jobs in September, with unemployment at 4.2% and annual hourly wage growth of 3.0%. MarketSpeaker’s jobs report examines the weaker hiring picture, which could ease some inflation concerns while also raising questions about demand.
Record ETF Flows Meet a Concentrated Market
Citadel Securities’ October 1 market outlook showed $1.93 trillion in U.S. ETF net inflows through September 29, using Bloomberg data. The third quarter contributed a record $771 billion. This is a broad ETF-market total, not a measure solely of purchases of American stocks.
The distinction matters because investors can allocate to both equities and bonds through ETFs. Strong demand for the fund structure does not, by itself, prove that all the incoming money reflects confidence in AI or is flowing into the same assets.
Concentration nevertheless helps explain the resilience of major indexes. Citadel calculated that roughly 41 cents of each dollar allocated to the S&P 500 goes to its 10 largest companies. It also found that only 25% of constituents were above their 50-day moving averages in its late-September snapshot. An index near its record can therefore coexist with widespread weakness underneath.
October Earnings Provide the Next Test
The calendar is shifting toward company results. JPMorgan’s third-quarter earnings call is scheduled for October 13. Citadel’s calendar analysis places a particularly large concentration of index-weighted earnings reports in the final week of October.
Investors will be assessing revenue growth, profit margins and whether AI spending is translating into sustainable returns. MarketSpeaker’s coverage of Nvidia’s record shows how operating results and capital returns already feature in the market’s valuation debate.
Strong results could support another advance, while disappointing guidance would leave stocks more exposed to elevated yields. Neither fresh equity records before the midterm elections nor a corresponding crypto rally is assured; the next round of earnings will show whether the optimism holding indexes near their peaks has sufficient financial support.
