Weak payrolls and a less aggressive PCE reading bring the Fed closer to a pause, yet the long end of the curve keeps selling off: the 10-year at 5.28%, the 30-year at 5.63%. The AI cycle holds up; the rest of the market does not.
Nasdaq +0.5% on the week versus S&P 500 −0.3%, Dow −1.3% and Russell 2000 −0.2%. Payrolls +29K, PCE at 3.4% and record-breaking Micron results reduce the risk of an immediate Fed hike; the 10Y Treasury nonetheless closes at 5.28% and the 30Y at 5.63%.
Week 39 shifted Fed pricing, not the bond regime. Less aggressive inflation than expected and a sharp slowdown in employment steered the market toward a pause in October, but the long end of the curve continued to sell off: the message is less near-term cyclical tightening, not an easing of financial conditions.
The week's sequence was instructive. Monday saw oil and yields reopen the inflation theme; Tuesday John Williams cooled the urgency for a further hike; Wednesday PCE surprised to the upside by less than feared and Micron validated AI demand with exceptional numbers; Thursday semiconductors and Japan/Korea reacted, while Europe was hit by the bond sell-off; Friday weak payrolls supported equities, yet Treasuries closed once again at elevated yields. The outcome is a selective market, not a uniform risk-on move.
AI leadership holds, but the S&P, Dow and Russell close the week in the red.
The front end draws relief from the data; the long end continues to price in inflation, energy and fiscal risk.
Brent above $100 and euro area HICP at 3.8% make it impossible to speak of linear global disinflation.
Performance from Friday 25 September close to Friday 2 October 2026 close. Indices in local currency.
Friday significantly improved the week's picture: S&P 500 +0.7%, Nasdaq +1.2% and Russell +0.9% following payroll figures well below expectations. Yet the weekly balance remains telling. Only the Nasdaq closed in positive territory; the Dow, S&P and small-caps all finished below the previous Friday's level. On a YTD basis the picture remains constructive — Nasdaq +17.0%, Russell +14.1%, S&P +12.8%, Dow +6.5% — but leadership continues to outpace the average stock.
Capital flows also reveal a non-trivial underlying structure: global equity funds attracted approximately $34.8 billion and US funds $20.6 billion in the reporting week, yet technology sector funds recorded outflows. In other words, capital is not deserting equities, but is becoming increasingly selective on valuations, liquidity and earnings quality.
| Market | Key figure | Regime reading |
|---|---|---|
| Nasdaq Composite | +0.5% WoW | The only major US index in positive territory: AI and semiconductors maintain their leadership. |
| S&P 500 | −0.3% WoW | Resilient but not breaking out: Friday's recovery does not dispel the pressure from rates. |
| Dow Jones | −1.3% WoW | The cyclical/value component remains more exposed to a growth slowdown and higher cost of capital. |
| Russell 2000 | −0.2% WoW | Small caps fail to confirm a structural broadening of market breadth. |
| Treasury 10Y | 5.28% · +11 bp WoW | The primary obstacle to a genuine multiple re-expansion beyond the leadership cohort. |
The Micron results of 30 September represent the week's pivotal corporate event. The fourth fiscal quarter delivered revenues of $54.23 billion, compared with $41.46 billion in the prior quarter and $11.32 billion a year earlier. The non-GAAP gross margin rose to 87.0% and adjusted EPS to $33.42. Of even greater significance for the market, guidance for the first quarter of fiscal 2027 points to approximately $61.5 billion in revenues and $38.15 in adjusted EPS, ahead of analyst expectations.
The figure that qualifies the cycle's sustainability is not revenue alone. Customer commitments under multi-year contracts rose to $32 billion from $22 billion in June, and remaining performance obligations increased to $150 billion from $100 billion. The AI memory cycle is therefore not merely a stock-market momentum story: it is backlog, contracts, production capacity and supply scarcity. This makes semiconductor leadership more robust, yet does not render it immune to the cost of capital.
The week also provided three useful counterpoints. Nvidia added $150 billion to its buyback programme, bringing the remaining capacity to $235 billion; Tesla delivered 486,532 vehicles in the quarter, above expectations, driven primarily by a recovery in Europe; Nike, by contrast, missed quarterly revenue estimates, with sales in China declining sharply and full-year guidance materially weaker. AI and consumer are telling the story of two very different cycles.
| Company | Week 39 Highlight | Verdict |
|---|---|---|
| Micron | Q4 revenue $54.23bn, non-GAAP gross margin 87.0%; Q1 FY27 guidance $61.5bn; customer commitments $32bn. | Strong validation of AI memory demand |
| Nvidia | +$150bn new buyback authorisation; remaining capacity $235bn. | Cash generation and confidence in the AI cycle |
| Tesla | 486,532 Q3 deliveries, above consensus; Europe offsets weakness in the US and China. | Core auto stabilising, not a definitive inflection |
| Nike | Q1 revenues $11.21bn, below expectations; Greater China −26%; full-year guidance sharply reduced. | Consumer/China demand still fragile |
The August PCE reading relieved pressure on the Fed without resolving the inflation problem. The headline index rose 0.3% month-on-month and 3.4% year-on-year; core rose 0.2% month-on-month and 3.0% year-on-year. Nominal consumption grew 0.9% and real consumption 0.6%: demand remains robust, but inflation was less aggressive than expected. Two days later, the labour market provided a second cooling signal: +29,000 payrolls in September, unemployment at 4.2%, wages +0.1% month-on-month and +3.0% year-on-year, with July and August revised down by a combined 60,000 jobs.
This mix led the market to price approximately an 80% probability of unchanged rates at the 27–28 October meeting, after the Fed had raised the target to 3.75–4.00% on 16 September. Yet the curve did not follow the macro relief: relative to the prior Friday, the 2Y rose 2 bp, the 5Y 8 bp, the 10Y 11 bp and the 30Y 14 bp. This is a bear-steepening of the long end, not a simple repricing of the Fed's next move.
| Treasury Node | 25 September | 2 October | WoW |
|---|---|---|---|
| 2Y | 4,81% | 4,83% | +2 bp |
| 5Y | 4,98% | 5,06% | +8 bp |
| 10Y | 5,17% | 5,28% | +11 bp |
| 30Y | 5,49% | 5,63% | +14 bp |
The key regime observation is this: a labour market slowdown is positive for equities only if it also produces a sustained decline in long-end yields. Until that occurs, the Fed can become less hawkish without financial conditions genuinely easing.
Lo STOXX 600 ha rimbalzato dello 0,8% venerdì, ma ha comunque chiuso la settimana in calo di circa l’1% dopo aver toccato giovedì il minimo da oltre tre mesi. Le banche europee hanno registrato la peggiore settimana da aprile: il messaggio non è quello classico di “tassi alti = banche forti”, perché il mercato sta iniziando a prezzare il danno macro di condizioni finanziarie troppo restrittive.
The most significant data point came from Eurostat: euro area inflation rose to 3.8% in September from 3.2% in August, with energy up 18.8% year-on-year and services at 3.2%. In parallel, French fiscal tensions widened the OAT-Bund spread to its highest level since 2011. Europe thus presents a more adverse combination than the United States: more fragile growth, a more direct energy shock, and a more pronounced fiscal risk premium.
Japan was the primary geographic beneficiary of the Micron message. The Nikkei gained approximately 3% over the week despite Friday's profit-taking, supported by chip- and equipment-related stocks. Breadth, however, remained less robust than the index itself: the rally was driven by the large high-beta names in the semiconductor supply chain. In parallel, Tokyo's core inflation at 2.7% keeps the risk of further Bank of Japan tightening firmly on the table.
In Korea, the KOSPI rebounded 1.95% on Thursday and added a further 0.46% on Friday following exceptional export data: September exports +83.5% year-on-year, with semiconductor shipments more than tripling. This is yet another confirmation that the AI hardware supply chain remains Asia's most resilient growth engine. Mainland China entered Golden Week from Thursday, while Hong Kong closed sharply lower on Friday: the Asian picture therefore remains far stronger in Japan/Korea semiconductors than in broad Chinese equities.
On the currency front, the dollar maintained a firm structure despite declining Fed rate-hike expectations. The euro remained under pressure from European rates and fiscal risk; the yen recovered on Friday but continues to be constrained by the yield differential. A dollar that holds firm against weak payrolls is a signal to be taken seriously: it indicates that yield advantage and demand for US assets are still dominating the FX channel.
Oil closed a volatile week with no genuine macro relief. Brent settled at $102.25 per barrel, broadly flat on a weekly basis, while WTI ended at $91.11, approximately −1.6%. US-Iran tensions, flows through the Strait of Hormuz, China's suspension of fuel exports, and the European/IEA strategic reserve release plan all generated sharp price swings, yet failed to bring Brent back below the threshold that matters for global inflation.
Gold and copper sent a different message. Spot gold shed approximately 3.4% over the week, weighed down by a strong dollar and elevated yields; COMEX copper fell roughly 3%, notwithstanding supply risks in Chile and tight physical inventories. The market is therefore prioritising the cost of capital and dollar strength over the scarcity narrative — a signal consistent with financial tightening rather than straightforward reflation.
| Factor | Event or Variable | Why It Matters | Signal to Watch |
|---|---|---|---|
| US Services | ISM Services · 5 October | Following weak payrolls, the key question is whether the slowdown is spreading to the dominant segment of the economy. | New orders, prices paid and employment. |
| Federal Reserve | FOMC Minutes 15–16 September · 7 October | They reveal how broad the consensus was for further rate hikes following the +25 bp increase in September. | Discussion on inflation, term premium and the number of additional tightening steps. |
| US Labour | Initial Claims · 8 October | Weak payrolls without a rise in layoffs point to an orderly slowdown; rising claims would change the interpretation. | Claims trend and continuing claims. |
| Consumers | Michigan Sentiment / Inflation Expectations · 9 October | Energy above $100 may erode confidence and expectations even as wage growth slows. | 1-year and 5-year expectations and the current conditions component. |
| Rates / Energy | 10Y, 30Y, Brent and DXY | These are the fastest transmission channel between geopolitics, inflation and equity multiples. | 10Y 5.35%, 30Y 5.70%, Brent $105, and the dollar's ability to extend its rally. |
Week 39 removed the most obvious analytical error: weak payrolls alone are not sufficient to conclude that financial conditions are easing. The front end has reason to settle, but the long end continues to demand a premium for inflation, debt supply, energy and fiscal risk.
For equities, the key distinction remains the same: earnings quality and capacity for self-financing. Micron demonstrates that the AI cycle can still beat a risk-free rate above 5%; the Dow, small caps and Europe show that the rest of the market does not enjoy the same buffer. The truly bullish signal will not be a new Nasdaq high, but a decline in yields accompanied by a broadening of market participation.
Author: Fabrizio Ravetto.
Disclaimer. This content is intended exclusively for informational and market analysis purposes. It does not constitute personalised financial advice, a public solicitation of savings or an individual investment recommendation. Any trading decision should be evaluated in light of one's own risk profile, time horizon and financial position.
Transparency. Content produced with the support of artificial intelligence.
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