The 10-year Treasury yield is near its highest level since 2002 even after a weak September jobs report. This week brings the minutes of the Fed’s September meeting, the first third-quarter earnings reports and the first trading days after Brazil’s first-round vote.

Markets start the fourth quarter with the same two pressure points that closed the third: long-term Treasury yields and crude oil. Friday’s jobs report eased expectations of an October rate increase, but long-term yields stayed near their highs. With the Fed’s September minutes on Wednesday and the first major earnings reports on Thursday and Friday, this week tests whether softer labor data or the inflation signal from energy carries more weight.

The Macro Setup

The economy added 29,000 jobs in September against a forecast of 84,000, and the unemployment rate rose to 4.2%. Revisions cut a combined 60,000 jobs from July and August.¹ Stocks rose on the report as traders scaled back bets on an October rate increase.¹

Long-term yields did not follow. The 10-year Treasury yield reached 5.34% on Thursday, its highest level since 2002, and the 30-year yield also reached its highest since 2002.² The 10-year was back near 5.34% on Monday.⁴

The shape of the curve has changed quickly. Two weeks ago the spread between 2-year and 10-year Treasury yields narrowed to about 20 basis points. It closed Friday at 45 basis points, as short-term yields fell on the jobs data while long-term yields held near their highs.³

The equity picture is still narrow. The Nasdaq-100 Index closed Friday at a record and rose 0.7% for the week, while the S&P 500 Index was roughly flat.⁴ The dollar gained 1.0% over the week.⁴

The Calendar

• Monday. ISM Services PMI.
• Tuesday. Bank of Japan Governor Kazuo Ueda speaks.
• Wednesday. Minutes of the Federal Reserve’s September meeting.
• Thursday. Initial jobless claims. PepsiCo reports earnings.
• Friday. Preliminary University of Michigan consumer sentiment and inflation expectations. Delta Air Lines reports earnings.

Sectors To Watch

Energy. The Group of Seven agreed Friday to release 100 million barrels of oil and fuel over four months, starting with diesel.⁵ Over the weekend, OPEC+ held its November production targets steady, although disruptions to Gulf exports have kept actual output well below those targets.⁶ Brent crude traded above $100 a barrel on Monday.⁴ The Energy Select Sector SPDR Fund returned 1.3% last week and is up 43.3% year to date, 4.2% below its September 15 high.⁴

Financials. Large banks gave back more ground. The Invesco KBW Bank ETF returned -2.7% last week and closed 11.7% below its August 14 high.⁴ Wednesday’s minutes will show how Fed officials weighed further rate increases at the September meeting, the question that has weighed on the group since August.

Technology and semiconductors. The VanEck Semiconductor ETF returned 4.0% last week and is up 75.1% year to date.⁴ The iShares MSCI Taiwan ETF and the iShares MSCI Japan ETF both closed Friday at records, and Governor Ueda’s remarks on Tuesday are the next event for Japanese markets.⁴

Credit. The iShares iBoxx $ Investment Grade Corporate Bond ETF returned -0.9% last week and is down 4.3% year to date. Its longer duration leaves it more exposed to the move in long-term yields.⁴ High-yield spreads widened 17 basis points over the week to 3.10%, after reaching 3.24% on Thursday.³

Gold. SPDR Gold Shares returned -3.4% last week and is down 4.1% year to date, in a week when the dollar rose and long-term yields reached new highs.⁴ Gold miners fell further: the VanEck Gold Miners ETF returned -5.5% for the week.⁴

Travel and leisure. The U.S. Global Jets ETF returned -2.9% last week and closed 16.1% below its August 5 high.⁴ With Brent above $100, jet fuel remains the cost to watch, and Delta’s report on Friday is the sector’s first company update of the quarter.

International. Brazil’s presidential election goes to an October 25 runoff. With 97% of ballots counted, Flávio Bolsonaro led with 47.45% of valid votes to President Luiz Inácio Lula da Silva’s 44.66%, a result that ran ahead of most major polls.⁷ The iShares MSCI Brazil ETF returned 3.7% last week ahead of the vote, and the Brazilian real strengthened against the dollar on Monday.⁴

Positioning

Equity volatility remains low relative to the moves in rates. The Cboe Volatility Index closed Friday at 15.3.⁴ The contrast between a calm equity market and long-term yields at their highest since 2002 is worth monitoring as the minutes and the first earnings reports arrive.

The Bottom Line

The jobs data cooled expectations of an October rate increase, but long-term yields stayed near their highest level since 2002. This week’s Fed minutes, the first third-quarter earnings reports and the oil headlines will show which of the two signals the market weighs more heavily.