Weekly market analysis: weak employment and stock markets at record highs

Weekly market analysis: weaker employment, firm stocks, and stretched valuation

Weekly market analysis:: updated analysis with context for investors.

• 📊 The S&P 500 closed Friday at 7,722.72 points, the Nasdaq at 27,190.86, the Euro Stoxx 50 at 6,241.75, and the IBEX 35 at 19,085.30.
• 🏦 U.S. employment added 29,000 payrolls in September, well below the 100,000 consensus, and the unemployment rate rose to 4.2%.
• ⚠️ The 10-year Treasury moved at 5.26%, with an ERP still negative versus the S&P 500’s implied earnings yield.

The weekly market analysis leads to a clear conclusion: equities are still being supported by expectations of a Fed pause, not by cheaper valuations. Friday’s close confirmed tactical strength on Wall Street and an orderly recovery in Europe, but with an equity risk premium that remains compressed. For managers and traders, the key is not just whether the market rises, but how much it is paying for each additional point of growth.

What happened this week

Friday closes: Wall Street reacts to employment and Europe follows

On Friday, October 2, the S&P 500 closed at 7,722.72 points at 22:00 CEST in Madrid, equivalent to 15:00 in Mexico City. The weekly gain was 1.00%, from 7,646.95 the previous Friday. The Nasdaq Composite closed at 27,190.86 points at 22:15 CEST, with a weekly gain of 0.45%, from 27,068.72.

In Europe, the Euro Stoxx 50 ended at 6,241.75 points at the 17:30 CEST close, with a weekly decline of 0.97% versus 6,302.82. The IBEX 35 closed at 19,085.30 points at 17:35 CEST, with a weekly drop of 3.12% versus 19,700.10. The divergence matters: the U.S. bought into rate relief; Europe remained penalized by high sovereign yields and greater cyclical sensitivity.

Breadth was mixed. The Russell 2000 closed at 2,832.89 points, versus 2,837.55 a week earlier, a weekly decline of 0.16%. That leaves the Russell 2000/S&P 500 ratio at 0.3669, below the previous week’s 0.3711. The VIX closed Friday at 15.31, above the prior Friday’s 14.87. The rally, therefore, was functional in the major indexes, but less broad beneath the surface. That nuance does not invalidate the rise, although it does reduce its tactical quality.

The decisive macro data point was U.S. employment

The week’s key release was the September U.S. labor report. Nonfarm payrolls grew by 29,000, far below the 100,000 consensus, while the unemployment rate rose to 4.2%. Reuters also highlighted downward revisions to the previous two months, an important detail because it cools the narrative of labor-market resilience. (marketscreener.com)

The reaction was immediate. The U.S. curve eased expectations of further near-term tightening, and equities interpreted the data as weak enough to moderate the Fed, but not as a sign of imminent recession. That balance explains why technology and growth preserved relative traction into the end of the week.

From an allocation perspective, the data favor high multiples only if wage deceleration remains contained and credit does not deteriorate sharply. For European banking, this is not a straightforwardly bullish reading. Less rate pressure helps duration, but slower growth requires monitoring nonperforming loans, cost of risk, and peripheral sovereign spreads.

Cross-asset: weak euro, firm oil, gold sensitive to yields, and expensive equities versus bonds

In currencies, EUR/USD closed Friday at 1.1255. The weekly move reflected a dollar still supported by elevated real yields. In fixed income, the U.S. 10-year Treasury ended near 5.26%, a level consistent with a cost of capital clearly more demanding than at the start of the year. That point remains the anchor for all global valuation.

In commodities, Brent moved around $99.67 at the close and gold stood at $4,201.70 per ounce in Yahoo Finance’s end-of-session reference. Crude maintains a geopolitical premium and supply constraint, while gold remains pressured by the combination of a firm dollar and high long-end yields. In European utilities, this environment requires monitoring debt costs and regulated duration. In consumer sectors, the question is how much margin can be passed through without breaking demand elasticity.

The institutional reading lies in relative valuation. If we take the S&P 500 at 7,722.72 points and a 2026 forward EPS of $365, the implied P/E is 21.2x. That EPS is aligned with consensus estimates cited by Reuters in August. The implied earnings yield is 4.73%. Against a 10-year Treasury at 5.26%, the ERP is -0.53%. In other words, U.S. equities are still trading at a poor relative discount versus bonds. Until that spread improves, each additional rise requires flawless earnings growth. (in.marketscreener.com)

What could move the market next week

Earnings: PepsiCo and Delta open a short reporting week, but a useful one for reading consumption and travel

Next week’s earnings calendar will not be as dense as during peak season, but it will still provide useful sector-level signals. PepsiCo will report on Thursday, October 8, and Delta Air Lines on Friday, October 9, both typical premarket references in the U.S., which is equivalent to early afternoon in Madrid if they maintain the BMO pattern. Pepsi offers very valuable insight into defensive consumption and margin elasticity. Delta helps measure corporate demand, premium leisure, and energy costs.

Base case (55%): the companies beat through mix management and commercial discipline, but guide lower. That would favor defensive consumer names and quality transport, without extending the move to the whole market. Bullish scenario (25%): guidance holds up better than expected and the market rewards earnings visibility. Adverse scenario (20%): signs of volume fatigue, promotional pressure, or cost pressure emerge, and rotation toward defensive sectors with strong balance sheets broadens.

For European portfolios, the readthrough is not marginal. If Pepsi confirms that pricing still offsets costs, Inditex and quality consumer names retain margin support. If Delta warns on fuel or demand, the effect could spill over into oil, airlines, and listed tourism. At the same time, banks and utilities will continue trading more on bonds than on micro fundamentals.

Macro: after soft payrolls, the market will look for confirmation in inflation and activity

Next week the market moves into validation mode. After weaker employment, the focus will be on whether disinflation follows through and whether activity avoids an abrupt slowdown. The sequence matters because an economy that cools while inflation remains sticky does not cheapen multiples; it only changes sector leadership. If CPI appears during the week, it will be the dominant reference because of its direct impact on the Fed, Treasury, and Nasdaq.

Base case (50%): the data confirm an orderly slowdown. In that case, the S&P 500 may consolidate above 7,700, the Nasdaq may retain leadership, and the Treasury may stabilize without another jump in yields. Bullish scenario (30%): inflation and activity surprise lower on prices and higher on growth. That would give breathing room to growth, semiconductors, and quality European cyclicals. Adverse scenario (20%): sticky inflation or activity that is too weak. In that case, the market would again punish long duration, small caps, and discretionary consumption.

For readers in the Iberian Peninsula and Latin America, the implication is operational. A stable dollar and high yields remain a tough filter for emerging markets and leveraged risk assets. EUR/USD, Brent, and Treasury matter just as much as the S&P 500 itself. If the curve eases, Santander and BBVA could find valuation support, but always with the caveat of nonperforming loans and sovereign spreads. If it does not ease, Iberdrola and other utilities will remain at the mercy of financing costs.

Geopolitics: oil, sanctions, and supply remain the main transmission channel

The geopolitical factor to watch next week remains energy. Reuters has been emphasizing for days that markets are still assessing the impact of tensions with Iran and the restrictive supply bias. When crude approaches $100, the transmission mechanism is direct: inflation expectations worsen, nominal yields rise, and the Fed has less room to pivot quickly. That channel weighs especially on long-duration growth and on energy-importing Europe.

Base case (60%): tensions persist without a material supply disruption. Brent would fluctuate near $95-$100 and the impact would be manageable, though uncomfortable for inflation. Bullish scenario (15%): diplomatic easing or a broader supply message. That would relieve bonds, consumer sectors, and airlines. Adverse scenario (25%): tighter sanctions or an incident that pushes Brent clearly above $100. Pressure on bonds, gold, and the dollar would then increase, with special punishment for small caps and energy-intensive sectors.

For Europe, the effect is not homogeneous. Repsol and integrated energy can act as a partial hedge. By contrast, chemicals, airlines, and part of the consumer sector would suffer more. For banks, higher oil for longer does not only affect inflation; it also complicates credit quality if the shock erodes disposable income and activity. (investing.com)

Conclusion

The week ends with a comfortable picture in prices, but a more demanding one in valuation. Wall Street bought into the idea of a less aggressive Fed after soft payrolls, and Europe regained some footing, although with weaker relative performance from the IBEX 35 and greater sensitivity to yields. The problem for investors is not the immediate direction. The problem is that, with the S&P 500 at 7,722.72 and the 10-year Treasury at 5.26%, equities still need an almost perfect earnings flow to justify multiples. The negative ERP of -0.53% is the best summary of that tension.

The base thesis remains one of selective upside, not indiscriminate beta. Nvidia, ASML, and big growth remain supported if the curve stabilizes. Santander and BBVA can do better if yields fall without a rise in nonperforming loans. Iberdrola needs relief in debt costs. Inditex will depend on margin and demand. What invalidates the base case? Another rise in the Treasury, Brent clearly above $100, or inflation that halts the implied dovish turn after the employment data. Reasonable hedges? Dollar, integrated energy, some tactical gold, and short duration. In this stretch, entry discipline matters more than chasing price.

This article is general financial information and does not constitute investment advice.

Keep reading on the blog: Stock market investment guide to make better decisions and Wall Street today: rebound after weak employment and Fed relief.