In 30 seconds: Weekly jobless claims came in below expectations at 197,000, construction spending beat estimates, and the Chicago PMI returned to expansion, though ISM Manufacturing slightly missed forecasts and prices-paid surged, painting a picture of resilient but inflation-pressured economic activity. US Treasury yields are hitting their highest levels since 2002, driven by hawkish Fed signals, rising deficits, and a global bond rout, with the 10-year real yield surging above the economy's potential growth rate and sparking debate about fiscal dominance and portfolio allocation. The S&P 500 posted modest Q3 gains while the Russell 2000 fell 7.5%, reflecting extreme large-cap concentration where only 15% of S&P constituents outperformed the index, even as analysts remain cautiously optimistic about Q4 seasonality. Brent crude surged past $100 per barrel amid escalating Middle East tensions involving Iran, prompting US states to implement fuel tax holidays, while Saudi Arabia ramped up exports and analysts flagged the disproportionate impact of diesel price spikes on Europe versus the US.
Initial jobless claims printed at 197,000, down 1,000 from the prior week, continuing to suggest employers are holding onto workers. Continuing claims came in at 1.701 million. Year to date, announced layoffs total 573,000, down roughly 40% from the 946,426 announced in the first nine months of 2025. The most cited justification for cuts? AI, at 21% of announcements, narrowly edging out market and economic conditions at 20%. On the manufacturing side, the September Chicago PMI jumped to 58.8, marking a return to expansion territory. The national September ISM Manufacturing PMI came in at 54.5, with new orders at 55.3 and employment at 52.7. The uncomfortable line item was prices paid, which came in at 77.9. Manufacturing sentiment was characterized as a mix of cautious optimism, adaptability, and growing inflation concerns. The consumer kept spending. August personal spending rose 0.9% month over month, a $190.8B increase, with $114.1B going to goods and $76.7B to services. Construction spending climbed 0.9% in August, led by private residential at 1.1% and nonresidential at 1.0%. Wholesale inventories rose 0.7% and retail inventories rose 0.3%.
The global bond rout is gathering pace. The 10-year yield hit 5.25% on Friday, and the real yield climbed to 2.82%. That is the kind of number that makes you rethink your portfolio, your mortgage, and possibly your career. The supply side of the problem is straightforward arithmetic. Treasury net issuance is running at roughly 5% of GDP, while the reserve bid for Treasury notes amounts to only 0.4/0.5 pp of US GDP. Global dollar reserves total about $7.5 trillion, but there are $18 trillion in Treasury coupons outstanding in the market. The increase in dollar reserves over the last 4qs of data (q3 25 to q2 26) amounted to just 0.7 pp of US GDP, with the actual reserve bid for Treasury notes closer to 0.4/0.5 pp of US GDP. Fedspeak this week struck a hawkish tone, not quite as aggressive as the rate-hike trajectory currently priced in by markets. Meanwhile, the pain is not confined to the US: Treasuries lost 3.7% in September, while German Bunds shed 1.9%. The dollar index closed at 102.03, up 0.57% on the day, trading at its strongest level this year. Gold, the asset you buy when you suspect the adults have left the room, settled at $4,207.20, up 0.49%. 10-year yield: 5.25%.
The S&P 500 eked out a 2% gain in the third quarter, its weakest quarterly advance since Q3 2021. The U.S. market was essentially flat for the past month, yet the majority of sectors, industries, and stocks were in negative territory. Meanwhile, the Russell 2000 went the other direction entirely, falling 7.5% for its first quarterly decline since Q1 2025. Evercore $P September performance: 40.7%. Advanced Micro $AMD September performance: 30.0%. S&P 500 constituents outperforming the index: 15%. Retail investors, for their part, have pulled back from purchasing stocks right as we enter one of the most bullish quarters of the four-year cycle. S&P 500 average Q4 return when YTD up 10%-20%: 5.3%.
Oil prices are doing the thing where they remind you that geopolitics is not, in fact, priced in. Oil prices overall climbed 35% over Q3 2026, dragging diesel up 32% alongside them. A contract roll briefly brought the prompt flat price below $100 per barrel, which is the kind of technicality that lets headline writers say prices "fell" while everyone filling a tank knows better. The supply side is trying to help. Saudi Arabia was loading 11 oil tankers simultaneously from terminals at Ras Tanura, Ju'aymah, Yanbu and Al Muajjiz, a pace that, if sustained, implies domestic production has risen and East-West pipeline is flowing higher, too. On the demand side, the pain is unevenly distributed. Fuel distillates account for roughly 41% of Europe's total oil demand versus only 19% in the US. So when diesel spikes, Europe bears a structurally larger share of the pain — distillates are more than twice as large a share of its oil demand as in the US. US states are responding the way governments always do: taking significant actions to lower gasoline and diesel prices via tax-holidays and/or allowing the use of dyed diesel on highways. Ohio, for example, is about to suspend a fuel tax worth roughly 40 cents per gallon. It is a nice gesture. It does not reopen the Strait of Hormuz. Which brings us to the Fed. The Fed can't magically reopen the Strait of Hormuz or repeal tariffs. What the Fed can do to slow inflation is freeze the economy until businesses stop raising prices, but the only problem with that is people will start losing their jobs. The US is deploying another aircraft carrier and 10,000 more troops. 10-year yield: 0.81 bps.
Here is what it costs to borrow money right now.
30-year fixed mortgage: 7.28%, up 25 bp on the week
15-year fixed mortgage: 6.60%, up 2.80% on the week
Auto loan rate (60-month): 7.14%, down 5.18% on the quarter
Credit card rate: 20.94%, down 0.29% on the quarter
Prime rate: 7.00%, flat on the day