Week ended Oct 2, 2026: stocks and bonds remain under pressure

Last week’s highlights included:

• The slow grind higher in global government bond yields, including US Treasuries, largely continued unabated.

• US employment data for September came in much weaker than expected.

• An agreement among G7 countries was struck to release crude reserves (mostly diesel fuel reserves) in an effort to reverse recent price increases.

• Corporate credit spreads gapped wider across the curve.

I’ll touch on these topics in more detail further below, after we look at last week’s market performance.

Markets last week

In summary, last week was not good unless you are a US tech investor—and even more narrowly, an investor in the right tech names.  Japanese and emerging markets stocks also performed well, while major US indices (aside from the NASDAQ) and European bourses were in the red.  However, what caught my attention more than equity market performance last week was the sharp spread widening that occurred in corporate bonds.

After showing amazing resiliency for many months even as Treasuries were selling off and stock market volatility was increasing, corporate bonds finally seemed to crack as spreads gapped higher. Neither investment grade nor high yield bonds were spared, with USD investment grade spreads widening by 7bps WoW (which is a significant percentage given base spreads), and USD high yield spreads gapping higher by 31bps.  Normally, credit spreads would tighten into higher yields initially, if for no other reason than because of a lag effect. However, this past week saw both corporate yields and credit spreads race higher in tandem, as you can see in the table below.

 I consider a deteriorating corporate bond market to be another clear indicator that risk is overbought, so as an investor, tread carefully going forward.

As far as stocks, US and European equities were volatile albeit generally weaker most of the week. Aside from the NASDAQ, most US indices were in the red. European stocks also sold off, with both US and European stocks facing the prospects of higher yields ahead. Japanese and emerging markets stocks were the winners last week, which is why geographic diversification makes sense for investors.

Intermediate and long-term total returns on US Treasuries slipped further into the red YTD as yields headed higher. Oil closed the week a touch lower as the situation in the Strait of Hormuz remains tenuous at best, with hopes pinned on an agreement among G7 countries to release 100 million barrels of strategic reserves over the next four months. Gold also lost ground in spite of the background turbulence, mostly a reflection of yield-bearing assets becoming relatively more attractive alongside a strong US Dollar. In currencies, the Dollar continued to slowly grind higher, reflecting both the direction of travel of rates in the States and perhaps a signal of money flowing into safe havens.

The "Market Tables" section below contains updated tables for the week ended October 2, 2026.

Let’s dig a bit deeper into what drove market sentiment last week.

US September jobs report mixed news for investors

As far as economic news that dropped last week, the most influential data was the September jobs report for the US. New jobs added in the month (+29,000) were far less than analysts’ expectations and far lower than in August (+133,000, revised). The unemployment rate ticked up slightly to 4.2%, and wage growth slowed.

The idea of bad news being good news for risk assets played out right before our eyes, as investors came into stocks mid-week after the report was released, wiping out some of the early-week losses.  The reason is that the weak jobs report lowered the odds of the Fed increasing its policy rate at the October FOMC meeting. Stock investors do not generally like high interest rates, so anything that lessens the probability of further rate rises from the Fed is greeted as welcome news.

Some might consider it odd that investors found a potentially more reserved interest rate trajectory so encouraging, even though weaker jobs growth suggests a slowing US economy.  This would not be good for future corporate earnings that underlie stock prices, especially at the lofty levels of many of today’s stock prices. Still, US equities are creaking but not breaking, held together mostly by the “AI trade” and everything that means for the companies at the forefront—or even on the periphery—of the great AI revolution.

Even though the jobs report might take some pressure off the Fed, bond investors did not buy into the relief. Yields remained under pressure most of the week in the US Treasury bond market, particularly at the intermediate and long end of the maturity curve. With stress spilling into the corporate bond market, fixed-income investors simply do not believe that inflation is licked because of one weak US jobs report. Moreover, record US debt and deficits remain, and will worsen if economic growth slows. Oil prices remain elevated due to ongoing tension between the US and Iran, resulting in high inflation, and the middle class is clearly feeling pain from higher prices. How stocks can remain so buoyant during this period of turmoil is beyond my understanding.

Other drivers

The key other driver last week was global bond yields. I will cover the ongoing government bond market deterioration in a separate article early this coming week (so as to keep this update shorter and more digestible).

Let me offer a suggestion based on experience:  Bonds speak the truth, so as an equity investor, I would keep a very sharp focus on what is happening with global bond yields, particularly in the US and selected European bond markets.

To show my hand, I am not liking the widening in government bond yields one bit, as it has all the elements of lead-up to a potential crisis. Investors are clearly nervous and their confidence is eroding. This is especially true in the UK and France, where bond investors are transparent in their views, and yields quickly reflect the sentiment. The USA is for now spared from this, holding the ultimate “get out of jail free” card in terms of its reserve currency and large, global US Treasury bond market. However, have no doubt that the US government is quickly running the fiscal strength of the world’s largest economy straight into the ground, too.

I am a Nervous Nelly, while retail stock investors continue to party “like it’s 1999.”

What’s ahead that matters?

• Earnings kick off in mid-October, led by the large US banks that report starting October 13th.

• The next FOMC meeting is October 27/28, with a policy decision to be announced on October 28.

• Several Fed members are making speeches this coming week, and these will be listened to carefully in light of last week’s weak September jobs report.

• In the US, investors will be focused on Friday’s consumer sentiment report. FOMC minutes from the September session will be released on Wednesday.

Markets Tables

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