Long-term Interest Rates at Highest Level Since 2002 Despite Slowing Inflation! Distortions in the US Stock Market and Future Points of Focus

📌 Today’s Key Points in 30 Seconds

• Major indices show mixed results: While the Nasdaq rose +0.24%, the Dow fell -0.86%, and the S&P 500 also turned negative at -0.25% due to selling in the final 30 minutes of trading.

• Divergence between ‘lower inflation’ and ‘rising long-term interest rates’: Although expectations for an October rate hike receded (dropping to about 37%) due to the August core PCE deflator (up 3.0% year-on-year) coming in lower than expected, the 30-year Treasury yield rose to 5.631%, its highest level since June 2002.

• Micron’s strong earnings and ‘Beat & Drop’ concerns: Despite both earnings and future guidance significantly exceeding market expectations, the rise in after-hours trading was limited to about +1.3%, raising concerns about a ‘sell the news’ reaction.

• Next focus: The ‘September Employment Report’ to be released on October 2nd and the battle over the 30-year Treasury yield breaking 5.65% will be the key milestones for short-term risk.

1. Major Indices & Market Performance as of the end of September 2026

On the final trading day of September, the US stock market saw a notable divergence, with the tech-heavy Nasdaq being bought while the Dow Jones Industrial Average, dominated by traditional sectors, fell significantly.

S&P 500

7,652.03

-0.25% (-18.81pt)

-0.4%

For the July-September period (Q3), +2.1%

Nasdaq Composite

26,861.06

+0.24% (+63.52pt)

For the period up to September (Q3), +1.9%

Large-cap IT stocks (MSFT, GOOGL, etc.) provided support

Dow Jones Industrial Average

50,908.79

-0.86% (-441.13pt)

For the period up to September (Q3), -4.3%

Financials and real estate, which are sensitive to rising interest rates, are a drag

SOX (Semiconductor stocks)

—

Slight decline

For the period up to September (Q3), +9.5%

Recorded a significant monthly gain

US 30-year Treasury yield

5.631%

+3.7bp

—

Highest level since June 2002

WTI Crude Oil

$90.34

+1.07%

For the period up to September (Q3), +5.5%

Rose in September against a backdrop of geopolitical risks, etc.

Gold

$4,157.12

-0.61%

—

Pressure from rising long-term interest rates

2. Why did long-term interest rates rise despite “inflation cooling”?

The most notable aspect of today’s market is the structure where improving (slowing) inflation indicators and rising long-term interest rates occurred simultaneously.

Differences in reaction between short-term and long-term interest rates

• Slowing inflation (factor for lower short-term rates): The August core PCE deflator came in at 3.0% year-on-year (expected 3.3%), showing a downside surprise. Following this, the probability of an October rate hike according to CME FedWatch fell from about 51% to about 37%, and Goldman Sachs also pushed back its forecast for an additional rate hike to December.

• Stronger growth indicators (factor for higher long-term rates): Meanwhile, the revised Q2 GDP was upwardly revised to 2.2% (from 1.5% previously), and ADP private employment also accelerated to +90,000.

• Conclusion: While the “PCE downside surprise” cooled the Fed’s rate hike judgment (short-term rates), structural factors such as stronger growth indicators, concerns over the fiscal deficit and increased government bond issuance, and rising oil prices caused long-term interest rates (30-year bond at 5.631%) to continue their upward trend.

3. The “plunge” in the final 30 minutes and two supply-demand factors

The S&P 500 and Dow Jones, which had been rising until just before the close, were pushed back by selling in the final 30 minutes and sank into negative territory.

The main factors that can be considered are the following two points:

1. Rebalancing selling by pension funds: Stock selling by US pension funds due to the end of the quarter (end of September) is estimated to be around $33 billion (a large-scale sell-off corresponding to the 98th percentile since 2000).

2. Resurgence of long-term interest rates: Following strong economic data, the rise in long-term interest rates resumed during the day, becoming a burden on interest-rate-sensitive sectors.

4. Why Micron’s strong earnings only saw a “+1.3% reaction in after-hours trading”

The FY26 Q4 earnings and next-quarter guidance for semiconductor giant Micron Technology (MU), announced after the close, were extremely strong, with both revenue and EPS significantly exceeding market expectations.

However, the stock price increase in after-hours trading following the earnings announcement remained modest at about +1.3%. Since the SOX index had already risen by +9.5% in September, the view that “good news has already been priced in” has emerged. Whether the stock price turns downward in regular trading on October 1st, resulting in a “Beat & Drop,” will be a litmus test for the sentiment of semiconductor stocks as a whole.

5. Future checkpoints & risk management

⚠️ Short-term risk factors

1. October 2 (Fri) September Employment Report: A “too strong result” will push long-term interest rates even higher, while a “too weak result” will raise recession concerns, making it a two-sided risk for the market.

2. 30-year bond yield: Warning line of breaking through 5.65%: If the rise accelerates beyond the September 29 high (5.648%), downward pressure on the stock market as a whole will intensify.

*This article is for informational purposes only and does not recommend the buying or selling of any specific securities. Please make final investment decisions based on your own judgment.