Tech Helps Wall Street Rebound

Stocks bounced back last week, with the S&P 500 gaining about 1.2% and the Nasdaq surging more than 2% on strong technology leadership. The story was a mix of diplomatic relief and softer commodity prices. The U.S. and China extended their trade truce by two months at the Trump-Xi summit, and we also saw meaningful de-escalation talk on two other fronts. U.S. and Iranian negotiators explored a possible path out of the war that could reopen the Strait of Hormuz, and the White House proposed hosting trilateral peace talks between Ukraine and Russia in the UAE. That combination pushed oil prices back below $93 per barrel, which in turn helped soften inflation expectations, ease the dollar, and pull Treasury yields back from their mid-week peak near 5.22%. The Dow eked out a small gain, while small caps slipped modestly, continuing the pattern of investors favoring larger, higher-quality names.

Underneath the tape: Semiconductor names led the tech rally, defensive sectors trailed, and market breadth remained narrow with the largest names doing the heavy lifting.

Last week gave the market a bit of breathing room after the Federal Reserve rate hike two weeks ago. Stocks pushed higher on a combination of geopolitical relief and continued strength in the artificial intelligence trade, while bond yields spent most of the week climbing before easing on Friday. The tone felt calmer, even though the underlying tensions have not really gone away.

The dispersion beneath the surface may be the more important story. The Nasdaq gained more than 2% while small caps fell nearly 1%, extending a pattern that has been building for weeks. When interest rates are elevated, investors tend to gravitate toward larger, higher-quality companies with the cash flow to absorb higher borrowing costs. Smaller companies, which typically carry more floating-rate debt, feel the pressure first. That does not necessarily mean small caps are in trouble; it just means the tape may continue to reward the biggest names for a while longer.

There is also a real question ahead about the government. The federal fiscal year ends Wednesday, and unless Congress passes a funding bill by then, parts of the government may shut down on October 1. Historically, shutdowns have created short-term volatility but relatively little lasting damage to the market. The bigger practical concern is what a shutdown may mean for economic data releases, particularly Friday’s monthly jobs report. If the Bureau of Labor Statistics is unable to publish on schedule, the Federal Reserve loses a key input just as it heads into its late-October meeting. That is worth watching closely.

The 10-year Treasury yield remains a number to track. It has spent the past two weeks bumping around 5%, with an intraweek peak above 5.22% and a Friday close of 5.17%. Yields at this level historically compete more aggressively with stocks for investor dollars, and they raise borrowing costs across the economy. That said, the market has digested this range without breaking down thus far, which suggests corporate earnings strength may be providing meaningful support. If yields ease from here, the pressure on stocks may lift; if they push higher, the volatility could return.

Zooming out, the picture remains constructive despite the noise. The S&P 500 is currently up more than 13% on the year. The Nasdaq is up nearly 17%. The trade truce extension buys some time on the tariff front. The largest capital spending cycle in American business history continues, with the artificial intelligence build-out showing no signs of slowing. September is nearly behind us, and if history is any guide, the fourth quarter has often been the strongest three-month stretch of the year.