October 10, 2026 | Unsubscribe
Good Morning!
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Now let’s break down what actually moved markets this past week and what to watch next.
Market Recap
Stocks finished the week higher and the S&P 500 and Nasdaq set new record highs, but this week the bond market mattered more than stocks. The one weak spot was small caps: the Russell 2000 ended the week lower, a sign that rising borrowing costs are still hitting smaller companies hardest.
The biggest story was long-term interest rates. The 10-year Treasury yield briefly topped 5.3%, its highest level since 2002, and the 30-year yield hit a 24-year high. Investors are demanding higher returns to hold government debt because of persistent inflation, high oil prices, and concerns about heavy federal borrowing. The impact is reaching everyday Americans. The average 30-year mortgage rate climbed to about 7.5%, its highest in nearly three years, and mortgage applications fell.
The Fed added to that pressure. Minutes from its September meeting, when it raised rates for the first time in three years, showed that officials think another hike will likely be appropriate before year-end. Markets expect the Fed to pause at its late-October meeting, but the overall direction is still toward higher rates, not lower.
Oil remained the main source of inflation risk. Prices moved back above $100 a barrel at one point during the week before easing on Friday, helped by an agreement among major oil-consuming nations to speed up releases from emergency stockpiles. As long as energy stays elevated, it will keep pressure on inflation, yields, and the Fed.
Large caps held up because of continued optimism around AI and expectations for a strong earnings season. For smaller companies, the message is that the bond market is in charge. Small caps are unlikely to catch up until long-term yields come down.
What’s Coming Next Week
Third-quarter earnings season starts with the largest banks. Expectations are high, with analysts forecasting S&P 500 earnings growth of around 30% from a year ago, led by energy and technology. Bank results will show how businesses and consumers are coping with higher rates through loan demand and credit quality.
The September inflation report on Tuesday is the key data release before the Fed’s late-October meeting, with wholesale prices and retail sales also due. A cooler reading would help bring yields down and give small caps room to catch up. A hot reading, with oil still elevated, would support the case for more rate hikes.
The bottom line: stocks are at record highs, but rising long-term yields are the main risk, especially for smaller companies. Bank earnings and inflation data will set the tone for the rest of October.
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SmallCapStocks Team
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