Key facts
- The Nasdaq Composite reached a new all-time high on Monday.
- The yield on the 10-year US Treasury surged to 5.35%, its highest level since 2002.
- Investors largely ignored rising bond yields, focusing instead on tech sector gains and falling oil prices.
- SpaceX shares jumped 6.3% after Morgan Stanley called the stock 'cheap'.
- Microsoft shares rose 2.8% after Melius Research issued a 'buy' rating.
- The spread between French and German 10-year bond yields widened to over 150 basis points.
Investors on Monday shrugged off a significant increase in bond yields, instead driving the Nasdaq Composite to a record high, fueled by gains in the technology sector and a dip in oil prices. The yield on the 10-year US Treasury rose as much as 7 basis points to 5.35%, reaching its highest point since 2002, yet this did not deter stock market participants.
Major US indexes saw gains, with the S&P 500 up 0.73% and the Dow Jones Industrial Average up 0.25%. The Nasdaq 100 climbed 0.81% to 31,058.77. The strength in tech was evident in individual stock movements, with SpaceX jumping 6.3% after a positive analyst note from Morgan Stanley, and Microsoft rising 2.8% following a 'buy' rating from Melius Research. Other AI-focused companies and chip manufacturers also saw gains.
Analysts noted that companies with strong earnings growth potential are attracting capital as they can outpace higher discount rates associated with elevated interest rates. The tech sector, particularly the AI complex, is seen as a primary beneficiary of this trend. Strategists at Raymond James suggested that underperforming stocks might see improvement in the coming weeks, potentially leading to broader equity market catch-up.
Meanwhile, global bond markets also experienced a sell-off. In Europe, the spread between French and German 10-year government bond yields widened to over 150 basis points, the largest gap in approximately 15 years, amid concerns about France's fiscal health. Market watchers have warned of potential financial contagion from this European bond sell-off.
Looking ahead, investors will be closely watching the minutes from the Federal Reserve's September policy meeting for insights into the central bank's thinking on inflation and future interest rate decisions. Following recent employment data, market expectations, according to the CME FedWatch tool, indicate a 76% probability that the Fed will hold rates steady at its October meeting.