US stocks held up despite rising long-term Treasury yields, with the S&P 500 closing Friday just below its recent record. Morningstar US market strategist Dave Sekera said investment in artificial intelligence remains an important source of market momentum. Investors now face a busy week of inflation data and major bank earnings, which could offer clues about the effects of elevated interest rates on markets and businesses.
The S&P 500 is near a record, but gains remain concentrated
The index finished Friday only slightly below the record it reached on Tuesday. Concerns about a weakening economy have so far remained limited despite higher interest rates, while spending on AI infrastructure continues to draw market attention. Companies are expanding computing capacity both to meet anticipated future demand and to avoid falling behind in the investment race.
Market participation, however, remains relatively narrow. Measures including the share of S&P 500 constituents trading above their 50-day and 200-day moving averages, the advance-decline line, and the number of stocks reaching new highs or lows improved last week but remained weaker than a month ago. Sekera said their direction during earnings season will help show whether the rally is broadening and how the market may develop toward year-end.
Ten-year Treasury yield touched 5.36%
US Treasuries weakened early last week, pushing the 10-year yield to 5.36% on Wednesday. Demand at a subsequent 10-year note auction exceeded expectations, bringing buyers back into the market. The yield fell to 5.24% on Friday and stood near 5.25% on Monday.
Sekera said the renewed demand offers short-term support but is not enough to confirm a trend reversal. A sustained move higher from around 5.25% would put 5.5% in focus.
Long-term yields abroad also remain elevated. Germany's 10-year yield closed Friday at 3.5%, compared with 4.59% for Italy, 4.1% for Spain and 4.86% for France. The French-German yield spread was about 140 basis points, wider than the spreads for Italy and Spain. Moody's is due to conduct its annual review of France later this month, and Sekera said a one-notch downgrade could not be ruled out. He likened the current spread to credit levels associated with weaker single-A or upper-BBB corporate debt.
Japan's long-term yields were just above 3%, about 10 basis points below recent highs but still within a historically elevated range for the country. Oil has recently traded from the high $80s to the low $90s per barrel, and rose to about $93 on Monday amid developments in the Middle East.
CPI and PPI could shape the Fed outlook
The US is due to release its consumer price index (CPI) and producer price index (PPI) this week. Headline CPI is expected to rise 0.6% month over month, up from 0.4% the previous month, and 3.6% year over year, compared with 3.4%. Core CPI is forecast to slow to a 0.2% monthly increase from 0.3%, while its annual rate is expected to edge up to 2.5% from 2.4%.
Headline PPI is forecast to rise 0.5% month over month, compared with 0.4% previously. Core PPI is expected to increase 0.3%, up from 0.2%. Sekera views PPI as a leading indicator for CPI and said the forecasts point to a modest further pickup in inflation.
The figures could influence the Federal Reserve's decisions at its October and December meetings. The October meeting is scheduled for the 27th and 28th, followed by the December meeting on the 8th and 9th. There is no rate-setting meeting in November.
Bank earnings will put loan quality in focus
Among the banks reporting are JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, US Bancorp and Bank of New York Mellon. Sekera expects banks to meet or exceed their usual near-term guidance. He said investors should pay close attention to management commentary on charge-offs, loan-loss provisions and the condition of retail and commercial loan portfolios.
He will also be watching how higher rates affect banks' held-to-maturity assets, though he does not currently expect a significant deterioration in credit conditions. Sekera contrasted the current environment with the period before Silicon Valley Bank failed, when the federal funds rate had risen by a cumulative 450 basis points and the 10-year Treasury yield by 250 basis points. In his view, the current increases have not reached the same scale.
Goldman Sachs and Morgan Stanley are also due to report. Sekera expects their investment banking and trading businesses to have performed well, while high assets under management could support fee income. He is particularly interested in management comments on the timing of Anthropic's initial public offering, expected after Thanksgiving, as well as other companies preparing to list. The IPO window has reopened, but some attempted listings have not succeeded, underscoring investors' selectivity over offering quality.
ASML results offer a read on chip-equipment demand
ASML, which makes equipment used to manufacture semiconductors, is set to report results. Its orders and performance can provide insight into fab expansion plans and demand across the chip industry.
Sekera said market expectations had been revised lower and ASML shares had fallen from their June peak into Morningstar's 3-star rating range. Whether the company meets expectations could affect its near-term share performance. If operating conditions have not materially changed relative to Morningstar's current valuation model, he said its long-term value assessment may not need to change; the results could also inform views on other semiconductor companies.
Morningstar raises Marvell fair value to $360
Shares of chip designer Marvell rose after its investor day. Sekera said the event provided new information, prompting Morningstar to update its model and raise its fair value estimate to $360 per share.
The available material ends without detailing the valuation changes or naming the five stocks mentioned as potential tax-loss-harvesting candidates.