Weekly Writing
Market Update for September 21-25, 2026
AI beat the bond selloff. Most of the market did not.
27 September 2026 · YK Research
Contents
Executive Summary
US equities rose with narrow participation. QQQ gained 3.2% and the semiconductor ETF SMH gained 5.9%. Equal-weight RSP fell 0.6% and small caps lost 0.7%. Investors bought the narrow group with the strongest AI earnings story and sold the parts of the market most exposed to financing costs.
Bond yields rose sharply. The 10-year Treasury yield rose 16 basis points to 5.17%. The 30-year closed at 5.49% after touching its highest level in more than two decades. Strong activity data, high energy prices, and hawkish Fed commentary pushed the market toward another rate increase in October.
The US flash composite PMI rose to 58.4, its highest since July 2021. Input costs also jumped to their highest since October 2022. Growth is strong enough to protect earnings, but strong enough to keep inflation and rates high. That is good for current profits and bad for weak balance sheets.
Global equities also advanced. Eurozone activity accelerated, Japan remained in expansion, and emerging-market equities gained. Oil eased on signs of a possible US-Iran path toward reopening the Strait of Hormuz, but crude stayed expensive enough to keep the inflation problem alive.
Bitcoin and Ethereum gained 4.0% and 3.0%. Gold fell 1.9%. Crypto behaved like scarce high-beta exposure to the AI and liquidity trade. Gold fell as Treasury yields rose.
The setup is fragile. The market can keep rising while AI estimates climb, but the burden of proof is now on earnings. Next week brings PCE inflation, payrolls, ISM manufacturing, and eurozone inflation. Any upside surprise in wages or prices raises the hurdle again.
US Stock Market
SPY gained 1.3%, QQQ gained 3.2%, and SMH gained 5.9% from the September 18 close to September 25. The Dow rose only 0.3%. IWM fell 0.7%, while equal-weight RSP fell 0.6%. The rally was concentrated. Broader risk appetite did not improve.
Microsoft gained 4.5% and Nvidia gained 1.3%. AI demand and monetization expectations outweighed the rate shock.
The average large-cap stock fell. Small caps also declined because a 5% Treasury yield makes refinancing and weaker profits harder to ignore.
AI leaders have rising revenue estimates, strong cash flow, and access to cheap capital. A higher discount rate hurts them, but faster expected earnings can offset it. Other companies have less earnings growth to offset higher rates. Oracle fell 7.1% over the week, which also shows that an AI label is insufficient when investors question the cash-flow path.
US equity funds recorded their first inflow in five weeks, according to Reuters, while small- and mid-cap funds still saw withdrawals. The flows matched the price moves. Capital returned to equities, but it went where earnings visibility looked strongest.
Global Markets
Global ex-US equities gained 0.8% through ACWX. Emerging markets rose 1.4%, Japan gained 1.0%, and Europe gained 0.5%. China large-cap exposure fell 1.0%. Global stocks headed for their best week since early August as AI enthusiasm and hopes for better Middle East energy supply offset the global bond selloff.
Europe produced the strongest macro surprise. The eurozone flash composite PMI rose from 52.0 to 53.1, the best reading since April 2023 and above the 51.7 consensus. New orders rose at the fastest pace in more than four years. Growth improved, but energy lifted input costs. The ECB therefore faces the same problem as the Fed: resilient demand with less room to ease.
Japan's composite PMI slowed from 53.5 to 52.5. Manufacturing remained healthy at 54.1, but services slowed to 51.6. The data still points to expansion, just at a slower pace. Chinese equities lagged after the Trump-Xi summit extended the trade truce without resolving AI controls, Taiwan, or the Iran war.
Cryptocurrency Market
Bitcoin rose from about $80,874 to $84,076 over the measured window, a 4.0% gain. Ethereum rose from about $2,612 to $2,691, a 3.0% gain. Both outperformed equal-weight equities despite the rise in long yields.
That relative strength looks more like momentum and scarcity demand than broad monetary easing. TLT lost 2.4%, the dollar rose, and credit weakened. Crypto can keep working while capital concentrates in scarce liquid assets, but it is doing so against tighter financial conditions. That raises drawdown risk if AI leadership breaks.
Economic Indicators, Statistics and News
United States
The flash US composite PMI rose from 56.0 to 58.4, the fastest private-sector expansion in more than five years. New orders also accelerated. The input-cost index jumped from 59.9 to 66.4, its highest since October 2022, as fuel, transport, wages, and supply delays raised costs.
Initial jobless claims fell to 197,000, below the 201,000 consensus and close to levels last seen in 1969. Continuing claims rose slightly to 1.719 million. The labor market is not giving the Fed a reason to tolerate higher inflation.
August durable-goods orders were virtually unchanged at $338.6 billion, better than expectations for a decline. Excluding transportation, orders rose 0.3%. Orders excluding aircraft rose 1.6%, a cleaner signal that business equipment demand remains firm.
Regional Signals
Eurozone and United Kingdom
Eurozone activity accelerated to a three-year high, while the UK composite PMI slowed from 52.5 to 51.7. Both regions reported higher energy and input costs. Europe has more growth than feared, but imported energy inflation limits policy relief.
Japan and China
Japan stayed in expansion while the pace slowed. China delivered little policy progress from the Washington summit. For global portfolios, that favors Japan and broad emerging-market exposure over a pure China policy bet until earnings or stimulus provide a clearer catalyst.
Policy read
Markets ended the week assigning about a two-thirds chance to another Fed increase in October. Strong PMIs and low claims validate the growth side. Energy and input costs validate the inflation side. The bond selloff reflects both.
Foreign Exchange Markets
The dollar proxy UUP gained 0.8%. Euro, yen, and sterling ETF proxies fell 0.8%, 0.3%, and 1.0%. The dollar index reached a two-month high on Thursday before closing Friday near 100.96. This was its second straight weekly gain.
The rate gap explains the move. Markets raised the odds of another Fed hike while US activity surprised to the upside. The dollar did not rise as much as the Treasury move alone would imply, likely because investors still demand compensation for US fiscal risk and policy uncertainty. Further dollar weakness alongside rising yields would warrant closer attention.
Commodities and Energy Markets
The WTI proxy USO fell 3.6%, the Brent proxy BNO fell 1.5%, gold through GLD fell 1.9%, and copper through CPER gained 0.9%. Oil eased on reports that US and Iranian negotiators were exploring a phased route toward reopening the Strait of Hormuz. Prices remained high enough to keep inflation risk central.
Diplomatic hope reduced the supply premium. Physical flows through Hormuz remain the test.
Higher real and nominal yields beat demand for monetary protection this week.
Industrial demand held up, consistent with stronger US and eurozone PMIs.
Debt and Fixed Income Markets
Treasury yields rose across the curve. The 2-year yield moved from 4.76% to 4.81%, the 10-year from 5.01% to 5.17%, and the 30-year from 5.34% to 5.49%. TLT lost 2.4%, investment-grade credit through LQD lost 1.4%, and high yield through HYG lost 0.9%.
Credit did not signal a funding crisis. It did signal tighter conditions. Higher long yields reflect persistent inflation, heavy supply, and fiscal uncertainty. The curve suggests little expectation that weaker growth will bring yields down soon.
What to Watch Next Week
- Wednesday, PCE and GDP: August core PCE is expected near 0.3% month on month. A hotter print would strengthen the case for an October hike.
- Friday, payrolls: consensus is near 100,000 jobs after 162,000 in August. Strong wages matter more than the headline because the Fed is already dealing with energy inflation.
- Thursday, ISM manufacturing: another strong activity reading would support earnings while putting more pressure on bonds.
- Eurozone inflation: watch for energy passing into core prices. That would force the ECB to stay restrictive despite weaker household demand.
- Breadth: SPY needs RSP and IWM to confirm. More semiconductor gains alongside falling equal-weight stocks would increase index concentration risk.
- The 10-year and oil: yields below 5% or a durable reopening of Hormuz would ease the pressure. A 10-year above 5.25% with renewed oil strength would break the current balance.
My base case is that AI leaders can hold up better than the market, but broad exposure offers poor reward against a 5.17% Treasury yield. I would favor strong balance sheets and current cash flow. I would change that view if equal-weight equities regain leadership while the 10-year falls below 5%.