Borrowing costs just hit their highest level since 2002, the Fed spent the week talking markets out of an October rate hike, and the average stock is having a much worse month than the headline index admits.
Story 1: The great bond tantrum of 2026
The 10-year US Treasury yield touched 5.344% on Thursday. The last time borrowing costs were that high, the iPod had a click wheel and nobody had heard of a subprime mortgage. (For the youths: ask your parents about the click wheel. It was delightful.)
Yields are the price of money, and when the price of money spikes, everything else gets repriced. The S&P 500 finished Thursday at 7,666.45, basically flat on the day, which sounds calm until you look under the hood: the equal-weighted S&P 500, which treats every stock the same instead of letting Apple and Nvidia do all the heavy lifting, is headed for its seventh straight week in the red. That would tie the longest losing streak for the median stock since the 2022 bear market. Meanwhile, the number of NYSE stocks hitting new 52-week lows has topped new highs for 23 straight sessions through Wednesday's close, the longest such streak since October 2023. The index is fine. The index's friends are not doing well.
The TSX had no such camouflage. It dropped 2.85% in September, closed Thursday at 35,155, and sits about 5.2% below its 52-week high of 37,069. Banks took the beating: RBC, BMO, and Scotia all fell roughly 1% on Thursday as Canada's 10-year yield held near multi-year highs, because banks borrow short and lend long, and the math gets worse when long-term money gets expensive. Energy was the lifeboat: Canadian Natural and Suncor each rose around 1.7% as oil climbed.
Why are yields surging? The honest answer is a cocktail. The US economy keeps outperforming expectations. The AI buildout is vacuuming up capital. And oil is flirting with triple digits, which makes everyone nervous about inflation round two. NY Fed President John Williams said this week's yield move is mostly about a strong economy and AI investment demand, "not a story about shifting views on inflation over the medium or longer term." Translation: the bond market isn't scared of inflation. It's just found somewhere better to put its money. Rude, but fair.
Reading this on the blog? One money idea explained plainly every Wednesday, weekly stock market news every Sunday. Subscribe free and get the one-page TFSA cheat sheet.
Story 2: The Fed un-hikes October (verbally, at least)
Two weeks ago the Fed raised rates to 3.75%-4.00% for the first time since 2023, and markets immediately started pricing in a sequel for October. At one point the odds of a second straight hike ran near 70%. (We covered the original hike in the September 23 issue.) Then the Fed's grown-ups stepped in.
NY Fed President John Williams and Vice Chair Philip Jefferson spent the week delivering what analysts called "unusually clear" guidance: no back-to-back hike, the Fed needs more time to see how the economy evolves. October hike odds collapsed to about 25%. Evercore ISI called the joint message "authoritative," which is analyst-speak for "stop asking, the answer is no."
The data backed them up. US inflation (PCE) came in at 3.4% for August, below the 3.7% economists expected. Then Friday's jobs report landed soft: 29,000 jobs added in September versus 90,000 expected, unemployment ticking up to 4.2%, and wage growth cooling to 3.0%, the slowest since 2021. August's blockbuster 162,000 got revised down to 133,000, because the economy giveth and the statisticians taketh away. Treasury yields fell to 5.17% and stock futures rose, which is the market's way of exhaling.
So October is probably a hold. December is where the action moved: markets now see about a 79% chance of a hike at the December 9 meeting. Minneapolis Fed President Neel Kashkari penciled in one more hike this year and another in 2027. The Fed decides October 28, roughly a week before the US midterms, and Williams went out of his way to say the election timing doesn't factor into the decision "at all." Noted, John. Noted.
Story 3: Canada's week, starring a copper mine and a currency
First Quantum Minerals had the kind of week that ages investor relations teams. On Wednesday the stock plunged about 15% after a Panamanian government commission recommended the "orderly closure" of its Cobre Panama mine, the giant copper deposit Panama shuttered in 2023. Investors heard "closure" and ran. Then the actual report came out: the commission wants formal talks on a new agreement that would let the mine operate under conditions designed to fund its own phased closure, at no cost to Panama. J.P. Morgan read it as a multi-decade operating framework. The stock was little changed on Thursday, then climbed about 3-4% on Friday once everyone actually read the report. "Orderly closure" turned out to be a very disorderly headline.
Meanwhile, the loonie is having its own rough stretch. It sank to about 70.25 US cents this week, an 18-month low, as surging US yields made American assets the belle of the ball. When US investors get paid over 5% to hold government bonds while the Bank of Canada sits at 2.25%, capital drifts south and the loonie pays the cover charge.
And the Bank of Canada spent the week doing philosophy. Senior Deputy Governor Carolyn Rogers told a Victoria audience on Thursday that the policy rate is too blunt a tool to fix housing affordability: cut rates and prices soar, raise them and buyers get boxed out. Canadian home prices are down roughly 20% since the 2022 peak, and she said the country is "on the right track" but has "a way to go." The next BoC decision lands October 28, the same day as the Fed's, which should make for a fun morning. Markets are now pricing more than 100 basis points of BoC hikes by next summer, per Scotiabank. Renters, this is the part where you pour one out.
What it means for us
Three things to know as a Canadian investor. First, the rate-hike era isn't a US-only production anymore: with both central banks deciding on October 28 and markets pricing BoC hikes into next year, the "cheap money comes back" trade is officially dead. If your mortgage renews within the next year, the 2021 math is a historical artifact.
Second, the loonie at 70.25 cents cuts both ways. It makes US shopping and travel sting, but it quietly boosts the Canadian-dollar value of every US stock you own. The American holdings inside your index funds just got a currency tailwind without you lifting a finger.
Third, energy is doing the heavy lifting on the TSX while banks and miners sag. If your portfolio is basically the Canadian index, you're riding oil prices more than you think.
What it means for the US
If you hold a Canadian all-in-one ETF like XEQT or VEQT, roughly 45% of it sits in American stocks, so here’s the translation. The bond tantrum is the main event: a 5%+ 10-year yield makes every future dollar of tech earnings worth less today, which is why the equal-weight S&P is on a seven-week skid while the AI giants keep the headline index afloat. Speaking of AI: Micron reported a monster quarter on memory demand from data centers and guided next-quarter revenue well above analyst expectations, and AMD rose 30% in September. The AI trade is doing the macroeconomic equivalent of holding its breath, and so far it's working.
The Fed's walk-back matters too. An October hold with a December hike on the table means US borrowing costs stay high but stop accelerating, which is the scenario where quality companies keep chugging and the speculative stuff keeps sweating.
The takeaway
Three things to do this week, none of which involve panic-selling:
Check your automatic contributions. The TSX is down almost 3% on the month and still up about 10% this year. Volatility like this is exactly what dollar-cost averaging is built for. Your future self thanks your present self for not touching anything.
If your mortgage renews in the next 12 months, start the conversation now. Fixed rates follow bond yields, and bond yields are not cooperating. Talk to a broker about your options while you still have time to think. (Last week's education issue covered where to park the money you're saving in the meantime.)
Look at your US exposure, not to change it, just to understand it. Open your brokerage app, note the percentage in American stocks, and notice that the Fed, the 10-year yield, and the loonie all have opinions about your money. Awareness is the whole game.
One link worth your time
Finimize's quick explainer on why the loonie hit an 18-month low: the yield-spread mechanics in about three minutes, minus the central-banker jargon.
The Loonie Report is written for entertainment and education, not financial advice. Numbers are checked against current sources at publish time; markets move, and so should your skepticism.