- Brent crude rose over 3% to nearly $107 after a Houthi missile attack on Saudi Arabia revived supply-disruption fears; the S&P 500 ended marginally lower.
- US and Iranian negotiators are exploring a phased path out of war that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran.
- The 30-year Treasury yield reached its highest since 2004; traders price a nearly 70% chance of a Fed hike next month after last week's 25-basis-point increase.
- Small caps are underperforming as rising rates and falling bond prices hit the group; the Russell 2000 is up 14% YTD versus 20% for the S&P 500, and IWM's correlation with TLT is 0.51.
- Meta Platforms added nearly $400 billion in market value since its Muse AI agent launch on Sept. 8, offsetting macro headwinds; equal-weight S&P 500 and Russell 2000 are both down more than 4% in September.
Quotes
“It's really all about oil and inflation and the effect on interest rates, and then the interest rate cascading across the capital markets.”
“Small caps have had a more difficult time adjusting to the Fed's hawkish turn and continued increase in rates at the long end, evidenced by the fact that their negative correlation to the 10-year Treasury yield is two times that of large caps”
“There is probably some more weakness to come if rates continue to move higher, but from a broader perspective, I wouldn't discount the still-strong fundamentals that some small caps are showing.”