US Stocks Rally as Tech Leads Amid Weak Consumer Sentiment

US equity indexes closed higher on Friday, driven by a broad-based rally and significant gains in mega-cap technology names, even as investors appeared to disregard a bear steepening in the yield curve. The Nasdaq Composite climbed 0.6% to 27,366.17, while the S&P 500 advanced 0.6% to 7,811.54. The Dow Jones Industrial Average rose 0.8% to 51,654.95. All sectors gained except energy and communication services, with real estate, consumer discretionary, and healthcare leading the advance. According to data compiled by Finviz, seven of the top 10 companies by market capitalization were technology firms. Alibaba (BABA) topped the gainers in this group, rising 5.4%.

The equity strength came despite a deterioration in consumer confidence. The University of Michigan's preliminary consumer sentiment index fell to 46.3 in October from 48.1 in September, missing the 47.6 expected in a Bloomberg-compiled survey. A Jefferies note identified this print as the second-worst on record, trailing only the 44.8 reported in May. Inflation expectations rose slightly, with one-year forecasts increasing to 4.7% from 4.6%, and five-year forecasts climbing to 3.5% from 3.4%. Thomas Simons, Jefferies Chief US Economist, noted that the trajectory of these expectations will rely heavily on oil and gasoline prices.

Simons highlighted vulnerabilities in global supply chains in a note, stating that despite substantial oil flows through the Strait of Hormuz, thin reserve stocks, seasonal demand, higher shipping costs, and limited refining capacity will keep gasoline prices elevated for some time.

Market pricing for monetary policy reflected uncertainty regarding future Federal Reserve actions. Late Friday data from the CME FedWatch tool showed an 81% probability that the Fed would leave its target rate unchanged in October. However, the tool assigned a 71% likelihood of a 25-basis-point increase in December and a 45% probability of another hike of the same magnitude in March.

Bond yields rose across the curve, with the long end accelerating to steepen the yield curve. Bloomberg data showed the term premium for 10-year Treasuries hit 1.2 percentage points this week, up from 0.68 percentage points a year ago. This increase reflects concerns over the US fiscal deficit, rising borrowing costs at Treasury auctions, corporate debt issuance for artificial intelligence infrastructure, and persistent inflation. The two-year Treasury yield jumped 3.7 basis points to 4.79%, its strongest level since mid-2024. The 10-year rate climbed 1.1 basis points to 5.24%, while the 30-year yield remained largely unchanged at 5.60%. Both long-end yields traded near their highest levels since 2002.

In related developments, US President Donald Trump told Al Jazeera that he would soon release news concerning diesel, claiming that near-record-high prices would soon fall. Front-month West Texas Intermediate crude oil edged up 0.2% to $91.65 per barrel, while Brent crude rose 0.1% to $104.41 per barrel.