All three main equity indexes opened lower amid a continuing sell-off in the bond market, though renewed hope for peace in the Middle East inspired a modest late-session rally. Still, with interest rates rising and upward pressures on inflation persisting, investors, traders and speculators are confronted with real choices about risk right now.
By the closing bell, the tech-heavy Nasdaq Composite had climbed off its intraday lows for a 0.01% gain to 26,939. But the broad-based S&P 500 was still lower by 0.02% at 7,704, and the blue-chip Dow Jones Industrial Average was down 0.3% to 51,350.
In the aftermath of the Federal Reserve’s first rate hike in three years following the September Fed meeting, New York Fed President John Williams indicated today another 25 basis point increase to the target range for the federal funds rate this year is coming.
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“It’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it,” Williams said at the London Macro Policy Forum before the opening bell.
The Labor Department (PDF) said before the regular trading session started that weekly jobless claims declined from 198,000 to 197,000, suggesting stability in the labor market.
“The economy is accelerating sharply,” Siebert Financial Chief Investment Officer Mark Malek observes, citing S&P Global’s Flash Composite Purchasing Managers’ Index (PMI) print of 58.4 and multiyear highs for manufacturing and services. “The bond market treated the strong data as an inflation and rate risk.”
Yesterday, the 10-year Treasury yield (+9.2 bps, 5.206%) broke above 5.1% for the first time since 2007, and today, the 30-year Treasury yield (+8.7 bps, 5.489%) hit its highest level since 2004.
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“Higher yields are changing the valuation equation for stocks,” Malek notes. “Stocks are offering almost no earnings-yield advantage over Treasuries. With an S&P 500 earnings yield around 5.15% and the 10-year near 5.10%, investors are being compensated very little for taking equity risk.”
As Malek concludes, “The biggest market risk right now may not be weak growth but excessive heat. Strong economic activity is welcome, but it makes the Fed’s inflation problem considerably harder.” The bottom line for the CIO: “Businesses are cooking. Households are sweating.”
According to Freddie Mac, the average 30-year fixed-rate mortgage this week was 7.03%, up from 6.95% last week and 6.3% a year ago. It’s the first time the average has been above 7% since January 2025.
ORCL falls on data center issues
Oracle (ORCL) fell as much as 7.7% after management of the tech stock invoked a clause in the construction contract to protect the company from cost overruns for a data center project in New Mexico. ORCL is now down 27.7% year to date.
Work on the $165 billion, 2.45-gigawatt Project Jupiter is proceeding amid significant regulatory, legal and logistical setbacks. A force majeure clause is a provision that temporarily relieves parties to a contract from performance obligations, including payment, due to extraordinary circumstances.
They’re usually applied in situations such as earthquakes, fires, floods, or other “acts of God,” but can also include “epidemics,” “pandemics,” “quarantines” or “governmental actions.” Contract drafters also use catch-all provisions such as “events beyond the reasonable control of the parties.”
According to Bloomberg, “Rather than trying to walk away as the site’s main tenant, Oracle is attempting to put off payments should the data center dubbed Project Jupiter get derailed and fail to come online in 2028 as planned.”
A spokesperson for Oracle said the project “remains on our planned schedule.” A spokesperson for Blue Owl Capital (OWL, -3.7%), the parent of the project’s developer, said the notice “does not change the financial commitments to this multiyear project” and that the parties are “fully aligned on Project Jupiter.”
Construction of Project Jupiter is supported by an $18 billion loan syndicated among 20 or so banks, including SoftBank. Last year, OpenAI signed a $400 million contract with Oracle to support development of the New Mexico campus, as well as four other U.S. data centers.
MGM will stay public
MGM Resorts (MGM, -11.0%) was the worst-performing S&P 500 stock on Thursday after People (PPLI, -0.1%) withdrew an offer to buy the casino operator.
“There are lots of ingredients that go into a proposal of this kind on its way to completion,” People Chairman Barry Diller said in a press release. “We didn’t feel the mix was coming together in the way we had hoped and have decided not to pursue taking the company private at this time.”
People holds approximately 26.1% of MGM, and Diller sits on its board. On June 1, People offered $48.30 per share for the 73.9% of MGM it doesn’t already own.
According to David Faber of CNBC, Diller’s main concern is the significant debt load completing the deal would have created for People.
MGM traded sideways for the first half of the year, then spiked on June 1 with the offer from PPLI. The stock was down more than 25% since the offer date through September 23, suggesting the market doubted the deal’s completion.