Records for the S&P 500 and Nasdaq, on a day the bond market finally blinked

The stock market did on Tuesday what it could not quite do on Monday: it took the whole index with it. The S&P 500 gained 45.00 points, or 0.58%, to close at 7,818.93, an all-time closing high. The Nasdaq Composite added 122.48 points, or 0.45%, to 27,599.79, its second record close in two sessions. The Dow Jones Industrial Average rose about 253 points, or 0.49%, to 51,521.28.

Feeds differed by a few hundredths at the close — Reuters' final tally had the S&P 500 at 7,818.95 and the Dow at 51,521.04 — but nothing changes the picture: two of the three major benchmarks finished at records, and the Dow, which last set a closing high on August 5, remains just over 5% below it.

Where the day was won, and where it faded

The highs came early. By 11:33 a.m. Eastern, Reuters had the S&P 500 up 0.86% at 7,840.66 and the Nasdaq up 0.83%. Both indexes gave back part of those gains into the afternoon — the Nasdaq nearly half of its move — and still closed at records.

The move was broad by sector and much thinner by stock. Ten of the S&P 500's 11 sectors finished higher, with utilities leading and healthcare the lone decliner. On the New York Stock Exchange, advancers beat decliners by 1.93 to 1. On the Nasdaq the count was almost a coin toss: 2,394 issues rose and 2,378 fell. Volume of 16.50 billion shares on US exchanges was below the 17.51 billion average of the past 20 sessions.

That gap matters for reading the record. A Nasdaq high built on a 1.01-to-1 breadth ratio is a high carried by a relatively small group of large stocks — on Tuesday, chip designers, optical-networking names and power producers — rather than one the average listed company joined.

The bond market blinked

The single biggest change from Monday was in Treasuries. The 10-year yield fell 0.040 percentage point to 5.270%, according to Tradeweb's 3 p.m. values reported by Dow Jones. That snapped a two-session climb that had taken it to 5.310% on Monday, the highest close since April 2002. Market data cited by Rallies put the 30-year at 5.642%, down about 2 basis points, and the two-year at 4.789%, down about 4.4.

Treasury's three-year note auction was the test of the day, and the result was mixed. The government sold $58 billion of the notes at a high yield of 4.932%, the most it has paid at a three-year auction since May 2006, MarketWatch reported. Demand was soft on one measure — the bid-to-cover ratio of 2.62 was below average — but the auction cleared just under the 4.934% when-issued yield, a sign it did not need a discount to get done. Direct bidders took 31.7% of the issue, the largest share since February.

Oil went nowhere, and that helped

Crude did not add to the pressure. West Texas Intermediate futures settled at $89.44 a barrel, up one cent, after trading below $87 earlier in the session. Newsquawk's settlement wrap said traders were weighing a report that Saudi Arabia's East-West pipeline was again carrying about 5.8 million barrels a day after an attack, against fresh strikes in the region and uncertainty over US-Iran talks. A flat settle on a day full of supply headlines was enough for the equity market, which had spent recent weeks trading oil spikes as inflation risk.

The rate picture going into Wednesday

Rate-hike pricing had already softened before Tuesday's session. As of Tuesday morning, the CME FedWatch tool showed a 78% chance that the Federal Reserve leaves rates unchanged at its October 27-28 meeting. Softer August inflation data, a weak September payrolls report and comments from Fed officials suggesting no urgency for another increase have all pulled hike odds down in recent sessions.

That is the tension running through this market. Expectations for the policy rate have eased, yet long-dated yields climbed to multi-decade highs anyway, which points to investors demanding more compensation for holding long-term government debt rather than betting on a more aggressive Fed. One quiet day of falling yields does not settle that argument.

What carries into tomorrow

Wednesday is the heavier day. The minutes of the Fed's September meeting are due in the afternoon, and investors will be reading them for any sign of how many officials see further increases as likely. The same day, Treasury sells $39 billion of an existing 10-year note, followed by $22 billion of 30-year bonds on Thursday — the two auctions most directly tied to the long-end yields that have dominated the past month.

Beyond this week, third-quarter earnings season begins next Tuesday with a group of large financial companies, and September inflation data is due next week. After two records in two days, the bar for both is now set by Tuesday's close: 7,818.93 on the S&P 500 and 5.270% on the 10-year.