Rising interest rates pressure tech; tight oil supplies benefit energy

U.S. stocks weakened notably on Friday: the S&P 500 ETF SPY fell 1.11% that day, the Nasdaq-100 ETF QQQ fell 2.50% that day, totaling a 5.52% drop for the week. ETF Radar's main theme this week is rising interest rates weighing on tech stocks, while oil and the Russia-Ukraine war have pushed up another group of assets.

This Week's Five Hot Topics

• AI computing power investment race: Data centers are being called the largest financial bet in U.S. history, and local opposition is also rising. The system remains in a contested state for the related ETF DTCR; the signal is still shallow.
• Federal Reserve 2026 interest rate cycle: Fannie Mae lowered its 2027 mortgage forecast, September import prices rose, and the dollar is relatively strong. The system is biased negative on the preferred stock ETF PFF, with fairly consistent signals.
• Russia-Ukraine war: A rift has appeared between the U.S. and Ukraine, and Ukraine resumed attacks on Russian refineries after a short ceasefire. The system is biased positive on the Canada ETF EWC.
• U.S. banks and credit stress: Regional banks say loans are stable and the economy shows resilience. The system leans negative on the regional bank ETF KRE, with moderate signals.
• U.S. debt crisis: The fiscal deficit is approaching 2 trillion dollars, and the U.S. Treasury rejected the IMF's debt warning. The system's signal for the bank ETF KBE is still shallow.

Key Changes This Week

• Direction reversals — turned negative: mid-duration Treasury ETF VGIT (from mixed to negative, 0.64), broad U.S. equities ETF VTI (0.58), China ETF MCHI (0.63), Taiwan ETF EWT (0.56), copper miners ETF PICK (0.62).
• Turned positive: Canada EWC (0.62), Germany EWG (0.62).
• QQQ moved from negative back to mixed; both bullish and bearish evidence coexist.
• Confidence strengthened: crude oil ETF USO (from 0.35 to 0.62), soybean ETF SOYB (0.40 to 0.64), semiconductor ETF SOXX (0.30 to 0.52, still mixed).
• Confidence weakened: steel ETF SLX, from 0.20 down to 0.04, essentially directionless.
• Newly tradable entries: energy sector ETF VDE, yen ETF FXY (tilting negative), real estate ETF VNQ (tilting negative), financials ETF XLF, EWC, utilities ETF XLU (tilting negative), etc.

Main Story 1: Rising Rates, Tech Gets Hit First

What happened this week. The U.S. 10-year Treasury yield was 5.09% as of 10/16, down 13 basis points over the past 5 trading days, but still up 15 basis points over the past 20 trading days. The 2-year yield is 4.74%. U.S. September PPI (Producer Price Index, measuring business input costs) rose 1.3% month-on-month, versus 0.6% expected. Retail sales rose 0.8%, versus 0.3% expected. The credit spread on high-yield bonds (the extra interest junk-rated companies pay over Treasuries) was 3.23% as of 10/15, having widened 53 basis points over the past 20 days, indicating growing concern about firms' ability to repay.

Why this matters for ETFs. Think of future profits as a distant check: the higher the interest rate, the less that check is worth today. Growth stocks have more earnings out in the future, so they are most sensitive to rates. Hotter-than-expected data means rate cuts are delayed, and tech stocks take pressure first.

SOXX (semiconductor ETF). Last week SOXX actually fell 11.80%, and it is down 7.44% over the past month. ETF Radar's model gives a mixed outlook for the next 1–3 months, with moderate signals. On the bearish side there are uncertainties from export controls and rising demand for option protection (more buyers of downside insurance); on the bullish side there is evidence pointing the other way. Prices already plunged last week, but the model did not turn fully bearish because neither the bullish nor bearish evidence lines were decisively broken.

QQQ (Nasdaq-100 ETF). Last week QQQ actually fell 5.52% and is down 1.61% over the past month. Looking forward, the model also rates QQQ as mixed with moderate signals, stepping back from a more negative stance a week ago. The bearish case is supported by the market's pricing that the ECB is unlikely to pivot dovish (probability about 0.96) and net speculative short positions in Nasdaq futures of about 19,000 contracts, implying rates could stay high. Bullish evidence has not been overwhelmed, so the conclusion remains mixed.

VGIT (mid-duration U.S. Treasury ETF). Last week VGIT actually rose 0.76% as yields fell this week and bond prices rose. The model's outlook for the next 1–3 months is biased negative with moderate signals. The weekly price rise runs counter to the model. The model is forward-looking and notes extreme speculative net short positions in 5-year Treasury futures (about -2.12 million contracts), along with hotter inflation data. If yields rise, bond prices fall. Last week's rebound has not overturned that logic; VGIT is roughly flat over the past month (-0.09%).

Main Story 2: Tight Oil Supplies Benefit Energy Stocks

What happened this week. The U.S.-Iran conflict continues to tighten oil supplies, Houthi attacks on Saudi Arabia increased again over the week, and Air India canceled flights to Riyadh, Dammam, and Jeddah, at least until 10/20. BNO, tied to Brent crude, rose 3.59% on Friday.

Why this matters for ETFs. The transmission chain the system sees is: war tightens spot oil, nearby month prices are much higher than later months, a condition called backwardation (near-term oil is pricier than future oil). In VDE's thesis, WTI front-month is about 101.41 dollars/barrel, the contract 12 months out is about 82.85 dollars/barrel, a spread exceeding 22%. When spot is tight, oil companies' sold barrels are more valuable and energy stocks' earnings expectations rise.

VDE (energy sector ETF). Last week VDE actually rose 4.41%, and it is up 5.45% over the past month. Looking forward, ETF Radar gives a positive outlook for the next 1–3 months, with fairly consistent signals and confidence 0.75. The past month's price movement aligns with the model; market prices have confirmed the model. This theme moved from contested to "confirmed" this week.

USO (crude oil ETF). Last week USO actually rose 9.15% and is up 5.16% over the past month. The model is also positive on the near term, with confidence rising from 0.35 to 0.62 and moderate signals. Support comes from the clear spread between the near-month and 12-month contracts, and EIA-reported available inventories being low. Note that the model flags this logic as partially priced in—the prior week's gains were already substantial.

Main Story 3: Russia-Ukraine War Hits Grain and Resource Exporters

What happened this week. Ukraine resumed attacks on Russian refineries, Black Sea ports and grain shipments are threatened again. A rift has emerged between the U.S. and Ukraine, with the U.S. tightening support and an Italian minister voicing public criticism.

Why this matters for ETFs. Port disruptions reduce grain exports, tightening global food supply and benefiting energy and agricultural exporters.

EWC (Canada ETF). Last week EWC actually rose 2.63% and is up 0.60% over the past month. Looking ahead, ETF Radar is positive for the next 1–3 months with fairly consistent signals. Since 10/9, fund inflows have totaled about 71 million dollars, indicating real money entering the market. The model also notes this good news has been partially priced in.

SOYB (soybean ETF). Last week SOYB actually fell 2.36% and is down 2.89% over the past month. The model's outlook is positive, with confidence rising from 0.40 to 0.64 and moderate signals. Speculative net long positions remain around 249,800 contracts, and the supply-shock logic still holds. But the month-long price weakness shows the market has voted against it over the past month. The model notes the global food-crisis narrative is still in an early stage, which may limit the upside; this merits continued monitoring.

Oil Shock Readings This Week

According to monitoring results, this round of oil supply shock is overall persistent with some local easing. On the physical side, Brent spot trades at a premium to nearby futures: the 5-day average premium is 23.0 dollars/barrel, compared with 17.3 about a month ago, indicating tighter spot supply now. The front-month contango/backwardation (near-month richer than the 6th month) remains: the 5-day average is 11.2 dollars/barrel, versus 14.2 a month ago, so it has flattened. Tanker transits through the Strait of Hormuz averaged 0.6 vessels per day over the 7 days ending 10/11, versus 0.9 vessels per day in the prior 7 days—only 1.3% of the pre-war normal of 45.3 vessels per day, still nearly a shutdown. The diesel crack spread (diesel refining margin over crude) has also narrowed: the 5-day average of New York Harbor ultra-low-sulfur diesel spot minus Brent spot is 84.1 dollars/barrel, versus 94.6 a month ago, meaning crude has risen faster than diesel.

What to Watch Next Week

ETF Radar will monitor three items next week. First, whether U.S. export controls on advanced semiconductors and AI hardware are implemented, which directly affects SOXX and EWT's outlooks. Second, the Houthi-Saudi conflict and whether Air India's suspension (through 10/20) allows flights to resume; also watch whether Ukraine's refinery attacks escalate, which would affect oil tightness. Third, whether the 10-year Treasury yield can hold around 5.09%; that will determine whether pressure on tech stocks and bond ETFs continues to increase.

Summary

This week's main themes are elevated rates weighing on tech, while tight oil supplies and the Russia-Ukraine conflict have supported energy and resource assets. ETF Radar's view on tech remains mixed, and it is positive on energy. A reminder: the above are directional forecasts from a systematic quantitative model for general markets and do not constitute personalized investment advice; consult a licensed investment advisor before investing.