Nasdaq Reaches New Record, Musk Regains Trillionaire Status

Inflation came in below expectations, the labor market softened, and consumer confidence declined, leading to expectations that the Fed will hold rates steady in October, which would relieve some bond market pressure.

Nevertheless, the expanding fiscal deficit and the ongoing conflict in the Middle East persist, meaning that even a dovish Fed is unlikely to bring markets back to 2021 levels.

Given the circumstances, one might expect the stock market to struggle, but the Nasdaq rose 1.05% on Monday to a new record, pushing Elon Musk back into the trillionaire club. This seems contradictory given that higher borrowing costs increase expenses for companies refinancing debt and funding projects, while elevated Treasury yields make high stock valuations less defensible.

The answer lies in additional factors at play.

First, the US economy continues to show resilience. Second-quarter 2026 GDP growth was revised upward to 2.2% from 1.5%, and early third-quarter data appears even more promising, even with slower job gains. Consequently, S&P 500 earnings are projected to increase 29.5% year over year in Q3 2026, the third consecutive quarter of growth exceeding 25%.

Regarding high energy prices, while they negatively affect consumers, a recent NBER study indicates that because the shale revolution made the US a net oil exporter, rising oil prices can increase incomes, consumption, and investment throughout the economy, as well as improve trade terms.

The upcoming quarterly reports will reveal how higher energy prices are affecting tech companies with significant chip dependencies, and whether Strait of Hormuz bottlenecks could disrupt chip production through helium supply issues.

Concerning bonds gaining appeal, investors might still favor stocks if earnings growth is sufficient to support valuations, and those valuations may not be as elevated as they seem: the S&P 500's forward P/E has declined this year while earnings have kept rising.

This does not imply that higher yields are without risks.

Rising yields increase borrowing costs, squeezing weaker companies, particularly those with large debts requiring refinancing at higher rates. Sectors like real estate and utilities, which are sensitive to rates, face heightened vulnerability; thus, for corporate bond selection, prioritizing firms with robust balance sheets is advisable.