General Market News

J.P. Morgan warns that stagflation risks are emerging even without significant economic slowdown, driven by oil prices sustained above $100 per barrel. The combination of reasonable economic growth with elevated inflation could trigger the first stagflation period since the 1970s, according to the firm's global research team.

• Extended oil prices above $100/barrel combined with sticky core inflation and rising food and energy costs are creating stagflation conditions reminiscent of the 1970s
• Record AI industry issuance and government deficits at record levels will impact pricing, particularly as investors shift from government to corporate debt amid supply-demand mismatches
• External pressures including El Niño effects and Middle East conflicts have contributed to the first coordinated central bank tightening cycle in many years

Oil prices fell Friday on reports that U.S. and Iranian negotiators are discussing a phased deal to end the Persian Gulf standoff. Brent crude declined 1% to $93.66 per barrel while WTI dropped 0.68% to $105.86 per barrel. The diplomatic optimism centers on a potential agreement for Iran to allow navigation through the Strait of Hormuz in exchange for ending the U.S. naval blockade.

• A senior Iranian official indicated the most realistic path forward involves Tehran allowing Strait of Hormuz navigation in exchange for the U.S. ending its naval blockade
• The two countries previously agreed to this approach under a June 17 memorandum of understanding, but the deal quickly collapsed into renewed fighting
• Iran wants the U.S. to return to the memorandum of understanding before U.S. midterm elections, according to statements by Iranian President Masoud Pezeshkian at the UN General Assembly

The Committee for a Responsible Federal Budget (CRFB) released an analysis showing that reducing the federal government's roughly $2 trillion deficit could improve affordability for American households by lowering inflation and interest rates. The nonpartisan group argues that deficit reduction through tax and spending policy changes would temper inflation, reduce borrowing costs, boost private investment, and prevent future crises from Social Security and Medicare insolvency.

• CBO estimates that every 1 percentage point reduction in deficits lowers interest rates by about 2 basis points; current rates are approximately 1.5 percentage points higher than they would be if debt-to-GDP ratios remained at 2001 levels
• Stabilizing the debt could increase income per person by $46,500 compared to $32,350 under rising debt scenarios, a difference of about $14,250 individually and nearly $36,000 per household
• Social Security faces an estimated 22% benefit cut (roughly $500 per month) in 2032 when its trust fund is projected to be depleted, highlighting the urgency of fiscal reforms to prevent an affordability crisis for seniors

The 30-year fixed mortgage rate surged to 7.45% on Thursday, jumping 19 basis points in a single day as Treasury yields climbed sharply. The spike follows Federal Reserve rate hikes, rising oil prices, and strong economic data, further pressuring an already struggling housing market facing high prices and limited affordable inventory.

• Mortgage rates rose 19 basis points from 7.26% to 7.45% in one day, with Mortgage News Daily re-running its survey after Treasury yields continued climbing in the afternoon
• The 30-year fixed rate had been as low as 5.99% in late February before rising due to the Iran conflict and September's Fed rate hike
• The bond selloff driving the rate increase had 'no obvious catalyst,' with analysts unable to identify a clear reason for the afternoon's heavy selling pressure

Finnish President Alexander Stubb urged SpaceX owner Elon Musk to expand Starlink satellite internet coverage over Russian territory, enabling Ukraine to strike Russian ballistic missile launchers. With winter approaching and Ukraine facing severe air defense shortages, particularly Patriot ammunition depletion, Kyiv believes Starlink access inside Russia would help target mobile launchers within several hundred kilometers of the border.

• Starlink currently does not operate over Russian territory but works in Ukraine, where it has become critical for battlefield communications and drone operations since Russia's 2022 invasion
• Ukraine needs three key resources for winter: air defenses (including Starlink capability), energy installations to protect against Russian attacks on power and heating sites, and financial support
• Stubb supports ceasefire efforts including Trump's call for an unconditional ceasefire, suggesting the war could be frozen along contact lines with 30-kilometer buffer zones, though he expects the conflict to continue past winter

City Therapeutics, a Cambridge, Massachusetts-based drug developer, filed for an initial public offering in the United States on September 24. The company plans to list on the Nasdaq under the ticker symbol 'CTY' with Goldman Sachs, Jefferies, Stifel, and Oppenheimer serving as underwriters.

• The company will trade on the Nasdaq exchange under the ticker symbol 'CTY'
• Goldman Sachs, Jefferies, Stifel, and Oppenheimer are serving as lead underwriters for the offering
• The filing represents another biotech company seeking public market access amid ongoing IPO activity in the healthcare sector

US stocks declined on Thursday with the Dow falling 162 points as Treasury yields reached multidecade highs and oil prices surged on Middle East supply concerns. The 30-year Treasury yield hit 5.491%, its highest since 2004, while Brent crude rose above $107 per barrel following a Houthi attack on Saudi Arabia. Markets now price in a 71% probability of a Federal Reserve rate hike in October.

• The 30-year Treasury yield reached 5.491% (highest since June 2004) and the 10-year yield surged to 5.21%, driven by strong economic data and rising Fed rate hike expectations (71% probability for October, up from 55% a week earlier)
• Oil prices jumped sharply with Brent crude gaining over 4% to close above $107/barrel and WTI rising 3% to around $95, as Houthi missile attacks on Saudi Arabia revived Strait of Hormuz supply disruption concerns
• The S&P 500 traded at just under 19 times expected earnings, its lowest valuation since 2023, while AI stocks showed mixed performance with Oracle falling on force majeure news and others like Microsoft and Broadcom declining

Economist Vasilii Sapozhnikov from the Mises Institute argues that the Dow:Gold ratio is a more accurate inflation measure than CPI, showing U.S. stocks have lost approximately 33% of their value in gold terms since early 2024 despite hitting nominal record highs. He predicts the current market cycle will reach a low around 0.5 ounces of gold per Dow point by approximately 2030, based on historical patterns from 1929, 1980, and 1999 market peaks.

• The Dow:Gold ratio fell from 19 ounces in early 2024 to about 12 ounces by August 2024, representing a 33% decline in real purchasing power despite nominal stock market gains.
• Sapozhnikov criticizes CPI methodology changes since 1983, including the switch to rental equivalence for housing and hedonic adjustments, arguing these revisions consistently lower measured inflation to benefit government fiscal obligations.
• Historical Dow:Gold ratio lows occurred at 2 ounces (1932) and 1 ounce (1980), leading to a prediction of 0.5 ounces around 2030, with the theory falsifiable if the ratio exceeds the 1999 high of 40 ounces without first reaching single digits.

Oil prices rallied sharply after Houthi forces, backed by Iran, launched ballistic missile attacks on Saudi Arabia, escalating Middle East tensions. WTI oil tested resistance near $93 while Brent oil pushed above $106 as traders grew concerned about potential supply disruptions through the Strait of Hormuz. Natural gas also surged on short-covering following EIA storage data that showed stocks 146 Bcf below last year's levels.

• Saudi-led coalition intercepted six ballistic missiles from Iranian-backed Houthis; Iran's President threatened to keep the Strait of Hormuz blocked until U.S. lifts sanctions and naval blockade
• WTI crude attempted to break above $92.50-$93.00 resistance with potential targets at $97.50 and $100, while Brent oil tested $106 with next resistance at $109-$109.50
• Natural gas rallied toward $3.25-$3.30 resistance after EIA reported a +53 Bcf storage build, with current stocks 146 Bcf below last year but 95 Bcf above the five-year average

Surging Treasury yields are creating a policy dilemma for Federal Reserve Chair Kevin Warsh as markets now price in aggressive rate hikes to combat inflation above 2%, tariff impacts, and AI investment-driven debt issuance. The Fed faces a difficult balance between tightening enough to maintain credibility on inflation without choking off economic growth. Market expectations have rapidly shifted from one rate hike in 2026 to potentially five or six increases.

• Markets now expect a rate hike in October 2026 (following a September increase), with a third hike likely by early 2027 and potentially more to follow, far exceeding earlier projections of one hike for the year
• The 10-year Treasury yield reached around 5.15% (highest since 2004), with RSM modeling showing even 5.5% yields may only slow growth to 1.5% and raise unemployment to 4.7% while core inflation remains stuck at 2.4%
• Warsh has emphasized letting markets guide policy, marking a reversal from post-2008 forward guidance, but this approach creates risk of either disappointing markets or triggering outsized reactions depending on the Fed's next move

Treasury Secretary Scott Bessent expanded the government's bond buyback program to $6 billion in long-dated securities, tripling the previously announced $2 billion operation, in an effort to calm volatility in Treasury markets. The intervention backfired initially, driving 10-year yields to 4.85%, the highest since November 2023. The Treasury is attempting to manage rising borrowing costs driven by Middle East tensions and growing US debt by shifting issuance toward shorter maturities.

• The expanded buyback announcement was poorly received, causing Treasury securities to sell off immediately rather than stabilizing as intended, highlighting the difficulty of the Treasury's effort to influence market conditions
• Bessent's strategy mirrors former Secretary Yellen's 2024 approach of rotating issuance from longer-dated bonds to shorter-duration securities, though without the buffer of excess cash in the Fed's reverse repo facility
• The Treasury expects to scale back active interventions after the midterms if Middle East tensions ease, potentially creating an attractive entry point for investors seeking to extend duration despite elevated near-term rates

Small-cap stocks have sharply underperformed large-cap indexes in September due to rising bond yields and falling bond prices. The Russell 2000's year-to-date gain has dropped from 20% at the start of September to just 14%, while the S&P 500 has advanced to 20% and the Nasdaq-100 to 12%. The correlation between small caps and the 10-year Treasury note price reached a one-year high above 0.97, indicating small caps are particularly vulnerable to rate movements.

• Small caps show a 0.51 correlation with the 10-year Treasury note compared to just 0.29 for the S&P 500 and 0.1 for the Nasdaq-100, making them twice as sensitive to interest rate changes as large caps
• Options traders are positioning bearish with IWM put volume at 480,000 versus 371,000 calls on Thursday, with $100 million spent buying puts compared to $50 million on calls; the popular 269-strike put expiring Oct. 16 requires a 4% selloff to profit
• Despite rate headwinds, analysts note small-cap fundamentals remain solid with forward earnings estimates looking strong and consistent improvement in PMI and U.S. growth data

Business Council of Canada CEO Goldy Hyder warns that ongoing uncertainty over USMCA negotiations risks triggering a 'capital chill' that could discourage investment across North America. While Canada is diversifying trade relationships, the U.S. remains its most critical partner, with 68% of Canadian exports going to America. The warning comes as trade talks between the U.S., Canada, and Mexico have stalled, with new restrictions exchanged in recent weeks.

• Nearly 68% of Canadian exports go to the U.S., with roughly 80% moving duty-free under USMCA exemptions, making trade uncertainty particularly damaging to investment decisions
• Canada is pursuing a 'U.S. Plus' diversification strategy, targeting 1 trillion Canadian dollars in investment over five years while strengthening ties with Europe, its second-largest trading partner
• Hyder argues all three North American countries should work together on energy, critical minerals, and supply chains rather than pursuing bilateral deals, stating 'all roads point to a merger' trilaterally

The Senate is scheduled to vote Thursday on a War Powers Resolution to end the U.S. war with Iran, as American consumers face gas prices averaging $4.48 per gallon due to the conflict. The concurrent resolution is largely symbolic since it does not carry legal force and won't be signed by President Trump, though Democrats argue the president must abide by congressional disapproval under the Constitution.

• The measure needs only 50 votes to pass the Senate after clearing the House in July, with Democrats seeing increased Republican support as the administration has missed deadlines to seek congressional approval
• High fuel costs, including runaway diesel prices affecting farmers and truckers, are creating political pressure on incumbent Republicans ahead of midterm elections less than six weeks away
• Democratic leaders led by Sen. Tim Kaine argue the president is already violating the Constitution and War Powers Act by continuing the conflict without congressional approval

Philip Morris (PM) has been identified as an attractive growth investment by Zacks Investment Research, earning a Growth Score of B and a Zacks Rank #2 (Buy). The tobacco company is demonstrating strong financial momentum across multiple growth metrics, positioning it well for potential outperformance in the market.

• Earnings per share (EPS) expected to grow 11.1% this year, outpacing the industry average of 10.7%
• Year-over-year cash flow growth of 14.6%, significantly higher than the industry average of -4.9%
• Zacks Consensus Estimate for current year has increased 1.3% over the past month, indicating positive analyst sentiment

The 10-year Treasury yield crossing 5% is not necessarily a dealbreaker for stocks, according to RiverFront analysis. Strong corporate earnings growth can offset the valuation headwind from rising rates, with consensus estimates projecting 33% earnings growth in 2026 and 17% in 2027. The firm believes the Fed's rate hiking cycle is nearing its peak, with only about two more hikes expected.

• Historical data shows stocks can perform well during 'slow' rate hike cycles, gaining an average of 10.5% in the first year when the Fed waits between moves, versus losing 3.6% during 'fast' cycles with consecutive hikes.
• High and stable interest rates have historically been the best environment for stocks, producing 5.4% quarterly returns with 90% positive outcomes since 1999, while falling-rate regimes were the worst performers.
• The S&P 500's forward P/E ratio of 19x is below its five-year average of 19.8x, yet stocks are up 12% year-to-date due to strong earnings growth compensating for valuation compression from higher rates.

Insurance costs for oil tankers loading at Saudi Arabia's Red Sea ports have tripled to around 3% of vessel value since early July, with some southern ports seeing premiums as high as 7%. This surge follows attacks by Yemen's Iran-aligned Houthis on Saudi-linked vessels and threatens Saudi Arabia's strategy to use the Red Sea as an alternative export route after diversifying from the Strait of Hormuz.

• War risk premiums for tankers at Yanbu port jumped from under 1% in early July to around 3%, while ports near Yemen saw rates rise from 1% to as high as 7%, nearly matching Hormuz strait levels of 6-9%
• Saudi Arabia diverted 4 million barrels per day (4% of global supply) through its East-West pipeline to Red Sea ports after Iran constrained Hormuz exports, but shut the pipeline on September 11 following drone attacks
• The US provides aerial protection for ships in Hormuz but not in the Red Sea, where Houthis have seized territory and vowed to target Saudi-linked vessels, making Red Sea transit more challenging despite billions invested in alternative infrastructure

The first week of October will feature major economic data releases including the PCE index, manufacturing PMI, and the employment report. The earnings calendar will be light but includes notable companies like Nike, Cal-Maine Foods, and Conagra. Key reports are spread throughout the week, with the employment report, factory orders, and average hourly earnings scheduled for Friday, October 2.

• Wednesday, September 30 will be the busiest day with the ADP employment report, final Q2 GDP estimate, personal income and consumer spending data, and the Chicago Business Barometer all scheduled
• Friday, October 2 will bring critical labor market data including the official employment and unemployment reports along with average hourly earnings and factory orders
• The JOLTS report and Case-Shiller home price index are due Tuesday, while Thursday will feature weekly jobless claims, construction spending, and the U.S. manufacturing PMI

Bipartisan U.S. lawmakers plan to seek Senate approval on Thursday for legislation to permanently ban Chinese vehicles from the U.S. market, using a fast-track unanimous consent procedure. The bill has strong support with 99-1 backing expected and over 100 House co-sponsors, building on Biden-era regulations that effectively barred Chinese automakers. The push comes amid concerns that President Trump may soften his stance on Chinese automakers.

• The bill would codify into law a ban on companies with more than 15% Chinese ownership from selling vehicles in the U.S., potentially affecting Mercedes-Benz (nearly 20% Chinese-owned) unless it complies by 2030
• Current U.S. policy already includes Biden-era regulations banning Chinese automakers over data security concerns and maintains tariffs exceeding 100% on Chinese electric vehicles
• Automakers and dealers urged Trump to 'keep the door firmly shut' to Chinese manufacturers after he suggested he would accept Chinese car companies building vehicles in the U.S.

Mortgage rates have risen above 7% for the first time since January 2025, according to Freddie Mac's latest survey. The average 30-year fixed mortgage rate climbed to 7.03% from 6.95% the previous week, significantly higher than the 6.3% rate from a year ago. This increase affects homebuyers and the housing market amid economic uncertainty.

• The average 30-year fixed mortgage rate reached 7.03%, up from 6.95% last week and 6.3% a year ago
• The average 15-year fixed mortgage rate also increased to 6.42% from 6.26% the previous week
• Mortgage rates are tracking the 10-year Treasury yield, which hovered around 5.1%, rather than being directly tied to Federal Reserve rate decisions