The big picture: Stocks finished the week higher even though bond yields hit their highest levels in almost two decades. Equities held up for three reasons: oil prices fell, geopolitical tensions eased somewhat, and tech names rallied.
Equities
Stocks rose on Friday. The S&P 500 gained 0.51% to 7,743.41, the Nasdaq Composite rose 0.48% to 27,068.72, and the Dow climbed 478.64 points, or 0.93%, to 51,828.62. For the week, the Dow was up 0.3%, the S&P 500 added 1.2%, and the Nasdaq rose 2%. Tech stocks drove much of the gain, especially Meta Platforms, which jumped nearly 13% on excitement about its AI agent Muse. The Dow's gain ended a three-week losing streak. Small caps lagged. The Russell 2000 was up more than half a percent at one point Friday afternoon but was barely positive late in the day while large-cap indexes kept climbing.
Bonds: the main story
This was mostly a bond-market week. The 10-year Treasury yield ended Friday up less than 1 basis point at 5.163%, after reaching its highest level since June 2007 on Thursday. The 30-year bond was at 5.488% after surging to levels last seen in 2004, while the 2-year yield fell more than 3 basis points to 4.856%. The selloff was global: Japanese government bonds, U.K. gilts, German bunds and other eurozone bonds also hit fresh highs.
A few details made it worse. Tuesday's 2-year auction saw robust demand, but the 5-year auction drew unexpectedly weak demand. On Thursday, the Treasury's buyback operation repurchased only $4.078 billion of 20- and 30-year bonds, short of the $6 billion it had planned to buy. On the Fed side, Governor Michael Barr said Wednesday that further rate increases will likely be needed to bring inflation back to 2%. Markets are pricing roughly a 67% chance of an October hike, after last week's first increase in three years. Higher yields are spreading into consumer borrowing costs: 30-year mortgage rates reached 7.45%, the highest since 2024.
The turmoil also showed up in volatility, which was on track for its biggest weekly jump in over a year.
Oil and geopolitics
Energy prices eased late in the week. Friday's drop in oil came from optimism about an Iranian offer to reopen the Strait of Hormuz and resume nuclear talks with the U.S. within seven days if Washington accepts its conditions. Brent traded below $100 at Friday's open, down roughly 5% for the week. Consumers are still under strain, though: average U.S. gas prices were close to $4.50.
Xi Jinping's state visit to Washington ended Friday. The formal dinner on Thursday had plenty of spectacle but produced few policy outcomes, and the U.S. and China appeared to agree to keep their trade relationship as it is for several months.
Economic data
The consumer picture weakened. University of Michigan sentiment fell to 48.1 in September from August's 51.7, and consumers' expectations for their personal finances dropped by about 10%. Durable goods were better than feared: August orders were roughly unchanged, while economists had expected a 0.3% decline.
Corporate notes
Costco beat estimates. It reported revenue of $95.72 billion against estimates of $94.88 billion, and EPS of $6.75 versus $6.53 expected. Management described members as resilient but focused on value. Wendy's continued to struggle. Franchisee Meritage Hospitality filed for Chapter 11 last week, and the stock is down nearly 21% year-to-date.
Looking ahead
The main question is whether Treasuries can stabilize near 5.2% on the 10-year. Other things to watch are whether U.S.-Iran diplomacy produces real progress on Hormuz and how Fed speakers talk about an October hike. For the AI trade, Micron's earnings next week will show how the memory-chip side of it is doing. The overall setup is a market where strong corporate profits keep stocks from falling far, while geopolitical and policy uncertainty keep them from rallying much.
Next week, Q4 begins and we are in the home stretch of 2026!