Weekly Recap and Forecast: Wall Street Opens October Higher Even as Oil Climbs above $100 and Bond Yields Hit a 23-Year High

Key Takeaways 

• Oil remained volatile: US-Iran tensions initially pushed crude higher before Saudi supply recovery eased pressure.
• Treasury yields surged: The 10-year yield topped 5.3%, while the 30-year moved above 5.6%, keeping financial conditions tight.
• Stocks proved resilient: Strong AI and technology demand helped equities absorb pressure from rising borrowing costs.
• Gold remained under pressure: Gold fell toward $4,110 as a stronger USD, elevated yields and Fed hike expectations weighed on demand.
• US inflation softened: Core PCE rose 3.0% YoY, below expectations, reducing near-term expectations for an October Fed hike.
• US growth remained resilient: Q2 GDP grew 2.2%, while ADP employment rose by 90,000, supporting the view of a still-resilient economy.
• Next week’s focus: Markets will watch US labor data, Fed expectations, Treasury yields and oil developments for the next major market direction.

US Bond Yields Jump to Their Highest Levels Since 2002

The bond market remained one of the biggest stories of the week. US Treasury yields climbed to their highest levels in years, with the 10-year yield briefly exceeding 5.3% and the 30-year yield moving above 5.6%, reflecting concerns over persistent inflation, higher oil prices, strong economic growth and the possibility of additional Fed tightening.

Despite the sharp rise in borrowing costs, US equities proved relatively resilient. The Nasdaq continued to benefit from strength in technology and AI-related stocks, while the broader market was more sensitive to rising yields. The week highlighted an important market dynamic: strong corporate earnings and AI demand have so far helped absorb some of the pressure created by higher interest rates, although sustained increases in long-term yields could eventually put greater pressure on equity valuations.

Gold Remains Under Pressure Due to Rate Hike Expectations

Gold had a difficult week, falling sharply toward $4,110, its lowest level since early August, before stabilizing around the $4,150–$4,200 area. The initial sell-off was driven by the combination of higher oil prices, a stronger US dollar and rising Treasury yields, which increased the opportunity cost of holding the non-yielding metal.

The picture briefly improved after softer-than-expected US inflation data reduced expectations for an October Fed hike. However, stronger US growth and employment data, together with elevated long-term yields, limited the recovery. Gold, therefore, remains highly sensitive to the USD Treasury yield and Fed expectations relationship.

US Economic Data Dominated Market Sentiment

The economic calendar provided mixed signals. August PCE inflation was softer than expected, with core PCE rising 3.0% year-on-year, reducing near-term expectations for another Fed rate hike. Markets subsequently reduced the probability of an October hike to around the high 40% from above 70% earlier in the week.

At the same time, the US economy remained relatively resilient. The third estimate for Q2 GDP showed 2.2% annualized growth, while August ADP private employment increased by 90,000. Initial jobless claims also remained low at 197,000, reinforcing the picture of a labour market that is cooling but not deteriorating sharply.

Outlook for Next Week: 5–9 October

The key theme for next week will be whether the market continues to move toward lower expectations for Fed tightening, or whether strong economic data and higher oil prices revive the case for another rate increase.

1. Treasury yields will remain critical. With the 10-year yield above 5% and the 30-year above 5.6%, the bond market has become one of the most important drivers of equity valuations. A stabilization or decline in yields could provide relief for stocks, while another sharp move higher could increase pressure on equities.
2. Oil remains the major inflation wildcard. Further progress in US-Iran negotiations and continued recovery of Saudi exports could reduce the geopolitical premium in crude. However, renewed disruption around the Strait of Hormuz or regional energy infrastructure could push oil higher again, potentially complicating the Fed’s inflation outlook.
3. Gold needs a break in the USD–yield relationship. After falling toward $4,110, gold’s next major moves will likely depend on whether Treasury yields and the dollar continue higher. A softer dollar and lower yields could allow gold to recover, while sustained high yields would keep the metal under pressure.
4. Stocks enter October with a relatively resilient backdrop but elevated risks. AI and technology strength continues to provide support, but the combination of expensive oil, very high Treasury yields and uncertainty over Fed policy creates a challenging macro backdrop. The key question for October will be whether corporate earnings and AI investment can continue to offset the pressure from higher borrowing costs.