Has the jobs data altered investor sentiment?
Our Senior Portfolio Manager and Head of Global Sustainable Investing, Kris Nelson, sees markets balancing several competing forces this week, from renewed oil-price volatility to softer labor data and increasingly demanding expectations around AI earnings.
The U.S. jobs report initially provided some relief. Payrolls increased by 29,000, below expectations of around 90,000, while unemployment edged up to a still relatively healthy 4.2%. Wage growth also moderated to 0.1% month-over-month and 3% year-over-year.
Together with relatively low initial jobless claims, the data pointed to a labor market that is cooling rather than deteriorating. Investors responded by reducing expectations for an immediate Federal Reserve rate hike, helping support growth and technology stocks earlier in the week.
However, there was more to the rates story. The 10-year Treasury yield remained elevated despite the softer labor data, suggesting investors are not yet fully reassured about inflation or the longer-term policy outlook.
Oil and fiscal risks keep pressure on bonds
Energy remains one reason for that caution.
West Texas Intermediate crude traded between roughly $88 and $93 per barrel this week. Prices initially fell after the International Energy Agency accelerated previously pledged strategic stock releases, before reversing sharply higher as geopolitical and supply concerns returned to focus.
As Nelson explains, persistently elevated energy prices could keep inflation pressures alive even as the labor market cools.
Fiscal concerns are also contributing to higher long-term yields globally. In the UK, the 30-year gilt reached its highest level since 1998, while French government bonds remained under pressure amid fiscal and political uncertainty.
Although the details vary by market, investors are increasingly demanding more compensation where fiscal risks appear less comfortable.
Are AI earnings meeting investor expectations?
Corporate earnings remain an important support for equity markets, with third-quarter S&P 500 earnings currently expected to grow roughly 27% year-over-year.
However, that strength remains concentrated. AI and energy companies are doing much of the heavy lifting, and the performance gap between AI-related and other companies has widened considerably.
This week provided an early indication of just how high expectations have become. TSMC (TSM) reported strong revenue growth, while Samsung (SSNLF) projected a sharp increase in operating profit, yet semiconductor shares failed to rally meaningfully on the news.
For Nelson, that reaction suggests strong results may increasingly be required simply to meet what markets have already priced in.
The AI investment cycle is also reaching further into corporate credit. Companies including Broadcom (AVGO), Nvidia (NVDA) and Oracle (ORCL) are reportedly exploring debt financing connected to AI infrastructure as leading AI businesses seek greater ownership of the hardware and capacity they rely on.
That makes the bond market another area to watch as the AI buildout evolves.
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