Markets This Week: S&P 500 Rises 1.2% as Oil and Yields Surge

A winning week that never felt comfortable

The major U.S. stock indexes finished the second week of October higher, but the gains came through a bond selloff, an oil spike and a sharp reversal in AI stocks. On Friday the Dow Jones Industrial Average rose 423 points, or 0.83%, to 51,654.95. The S&P 500 added 0.59% to 7,811.54, and the Nasdaq Composite gained 0.64% to 27,366.17.22 For the full week the S&P 500 was up about 1.2%, the Dow 0.9% and the Nasdaq 0.6%. That was the Nasdaq's fourth straight weekly gain, and the S&P 500 and Dow made back the losses from the week before.24 One recap puts the S&P 500's weekly gain at 1.15% and calls it the Dow's best week since early August.23

The weekly numbers hide a lot of movement. The S&P 500 set a record high of 7,844.52 early in the week, then gave ground as a bond market rout drove the 10-year Treasury yield to 5.3645%, its highest level since April 2002.23 On Thursday a report about OpenAI's revenue hit AI-linked shares. The Nasdaq fell 1.3% and the S&P 500 lost 0.5%, while the Dow barely held positive.28 Associated Press coverage described a market setting records while other asset classes stayed undecided.27

The main takeaway is that the rally is getting narrower. Fewer stocks are carrying the S&P 500, and strength in tech is covering up weakness elsewhere.24 Rising long-term yields are now doing some of the tightening that the Federal Reserve would otherwise have to do. That leaves equities exposed even as headline indexes sit close to records.

The Fed: no hurry in October, but not finished

The main central bank event was the release on October 7 of minutes from the Fed's September 15–16 meeting. At that meeting the Fed raised rates by a quarter point to a 3.75%–4.00% range. It was the Fed's first hike since July 2023, and the vote was 12–0.17 Coverage of the minutes agreed on the main points. Most participants thought another increase would probably be appropriate by year-end, and they saw inflation risks tilted to the upside. The minutes gave no sign of urgency to move at the October 27–28 meeting.1719

The minutes also showed that the unanimous vote covered real disagreement. Some officials treated higher rates as insurance against sticky inflation, while others thought tighter policy was justified by their baseline forecasts.19 One summary said members disagreed about the purpose of the hike, with some focused on demand-driven inflation and others on price shocks from energy and AI.14 A few participants said the Fed should prepare tools for possible stress in the Treasury market. Given where long-term yields are now, that detail matters.19

The data released since the meeting mattered more to markets than the minutes did. September payrolls rose only 29,000, against a consensus of about 90,000. August core PCE inflation came in at 3.0%, below the roughly 3.3% expected.18 Futures-implied odds of an October hike fell from about 70% to around 20%.18 By Friday, estimates put them at roughly 16%–18%, with a hike by December priced at about 75%–85%.17 Readings from CME FedWatch around the minutes put the chance of a pause near 78%.16

The Fed, now led by Chair Kevin Warsh, is still leaning toward tightening, but the question has moved from whether it will hike again to when.1719 The bond market is adding pressure in the meantime. According to one analysis, the minutes said yields had risen partly because of geopolitics and heavy corporate borrowing tied to AI.17 A former Philadelphia Fed president argued that the long end of the yield curve has already moved, and that this is the part that matters for the economy.14

Other central banks face the same bond pressure

The pressure on bonds was global. Brent's jump on Thursday drove UK 10-year gilt yields toward 5.5%, a level last seen in 2007. The Bank of England's governor said fiscal policy needs to be credible to calm markets.31 Eurozone finance ministers and the ECB were expected to press France to pass a budget, and the bond selloff pushed the euro close to a 17-month low.31 The ECB's account of its last meeting was also released during the week. The next ECB and Bank of England rate decisions are set for October 29 and November 5.18

Semiconductors: strong results, cautious buyers

Chip stocks had a mixed week. Samsung Electronics reported a record preliminary third-quarter operating profit of about $80 billion, close to nine times the prior year's level. That still fell short of the average analyst forecast.6 Samsung's shares are about 25% below their June peak, which shows how high expectations in the AI trade have become.61 Taiwan Semiconductor reported that September sales rose 54.6% from a year earlier.7 When AI stocks sold off on Thursday, CoreWeave fell nearly 8%, Arm dropped more than 6% and Intel lost more than 5%.1

Analysts disagree about where the sector stands, and the difference matters. Goldman Sachs said the Philadelphia Semiconductor Index had fallen 11% over two months while the S&P 500 rose 4%. Goldman called that a de-risking that improves the setup going into earnings, and named Applied Materials, Seagate and Microchip as tactical buys.48 Other coverage reported that the iShares Semiconductor ETF gained 11% in September alone and trades at about 43 times earnings.7 The two accounts cover different indexes and periods, so they can both be accurate. Together they suggest the leadership within the sector has shifted. Memory and equipment names have risen sharply, with Seagate up more than 200% this year and Applied Materials up about 110%, while other parts of the sector have lagged.4

The next big test for the AI trade is TSMC's earnings on October 15. ASML's report and Applied Materials' appearance at SEMICON West on October 13 are also coming up.24 Investors are no longer rewarding results that are simply strong. Guidance now has to back up valuations that already assume a lot.

Oil: war premium, hurricane and a pause before the midterms

Oil was the biggest source of volatility during the week. Brent opened the week lower after G7 countries agreed to release 100 million barrels of diesel and crude from emergency reserves, and as Middle East exports recovered to pre-war levels on several days. Brent settled at $100.32 on Monday.39 The situation changed on Thursday. A record number of tanker attacks around the Strait of Hormuz in the prior week, reports that the White House had asked for options to strike Iran, and Hurricane Isaias in the Gulf of Mexico together sent Brent up about 5%, briefly above $105.3734

Reports differed on how much U.S. supply was lost, mainly because the storm was still developing. Earlier in the week, producers had shut in more than 510,000 barrels per day, about a quarter of Gulf output.35 By Friday, about 63% of Gulf production was reported offline.33 The rally then faded. President Trump said the U.S. would not attack Iran before the November 3 midterms, and China was expected to resume exports of refined fuel. Brent slipped back to around $103–104, though it still finished the week higher.3634 WTI was headed for a weekly decline.33

Some analysts think the market is underpricing the risk. Energy Aspects' Amrita Sen argued that futures are complacent and that some physical crude grades should be trading near $150. She said traders are betting too heavily that Washington will push prices down before the election.32 Brent prices that depend on statements from the White House look fragile, and that fragility feeds back into inflation expectations and the Fed's decisions.

Bitcoin: hurt by the same pressures

Crypto did not hold up against the shift away from risk. Bitcoin closed Friday at $82,123, down 2.81% for the week, which ended a three-week winning streak. Ether fell 6.77% to $2,488.43 Bitcoin hit a low of $80,308 on Thursday before recovering above $83,000. More than $700 million flowed out of spot bitcoin ETFs during the week.42 Crypto liquidations topped $1.1 billion during the selloff.42 Measures of the decline differed by start point: one weekly snapshot taken before Friday's bounce showed bitcoin down more than 4%.41 Coverage agreed on the causes: oil above $100, rising yields, a stronger dollar and the minutes' signal that another hike is likely.4450

This week reinforced that bitcoin is not acting as a hedge against geopolitical risk or inflation right now. It is trading like a leveraged bet on financial conditions.

What comes next

The coming week is busy. September CPI is due on October 14, and PPI and retail sales follow on October 15. Major banks begin third-quarter earnings, and TSMC reports on Thursday.217 Stocks ended this week close to records despite 5% Treasury yields and $100 oil. A firm CPI reading could quickly push October hike odds back up. A strong TSMC report would test whether the AI trade can still lead the market without help from the rest of it.