Axios Markets

After clawing to within 5% of a new record high, much of the S&P 500's 2023 gains have melted away over the last few months, Matt writes.

Why it matters: Touching a new high is the traditional confirmation that stocks are officially in a new bull market.

Context: The market staged a remarkable rally after it bottomed almost a year ago, on Oct. 12.

• Stocks started to rise as inflation reports showed a welcome slowdown in price increases.
• Falling inflation led to a tumble in long-term interest rates as investors bet the Fed might ease its tough monetary policy. (Lower long-term interest rates tend to boost the stock market.)

By the numbers: The S&P 500 soared nearly 30% between October and July.

• The tech-heavy Nasdaq jumped nearly 40%.
• That led some to declare that happy days were here again and that a new bull market had begun. (Your humble Axios scribe was reluctant to agree.)

Yes, but: That was then. Since the end of June, inflation — like Monty Python's proverbial plague victim — has shown it isn't dead yet.

• Oil prices have jumped — thanks to Saudi Arabia and Russia cutting production.
• Home prices have resumed their upward climb.
• And the economy has stayed pretty strong causing many to rethink their views that a near-term recession would eventually lead to rate cuts.

The impact: Long-term interest rates are now the highest in 16 years — and stocks don't like it.

• With one trading day remaining, the S&P has shed more than 4.6% this month, in its second straight monthly decline. It was its worst month of the year.
• The benchmark index, which in late July was up nearly 20% for the year, is now looking at gains of just 12%.

The bottom line: The "new bull market" may just be a bear market rally.

✨ Scoop: Yellen's plan for a breakthrough with China. (Axios)

🤖 Walmart taps generative AI to help people shop. (Axios)

💶 Eurozone inflation cools to a two-year low. (FT)

Crude oil and super-safe, short-term cashlike investments were your best bets in Q3 — while long-term bonds got beaten up pretty good, Matt writes.

The big picture: The story behind the numbers is the as-yet-unfinished battle between the Federal Reserve and inflation.

Context: A sharp uptick in crude oil prices over the last few months — driven by production cutbacks by OPEC+ pals Saudi Arabia and Russia — has reinvigorated inflation pressures.

• It's also rewarded investors who bet on rising oil prices.
• The S&P 500 energy sector was up about 14% in Q3, the only industry component of the benchmark index that saw a gain.
• And the U.K.'s commodity-heavy FTSE-100 also fared decently.

Where it stands: Outside of energy, the pain in stocks was pretty broad-based — including a sharp downturn for both the tech-heavy Nasdaq and Russell 2000 index of small-cap stocks that tend to be sensitive to short-term expectations for the U.S. economy.

Yes, but: The weakness in Q3 doesn't spell disaster for full-year returns, given how well the markets performed earlier this year.

• The Nasdaq is still up 26% this year.

The IPO machine is slowly creaking back to life — deals picked up over the last two quarters after more than a year of near-zero activity.

Catch up quick: A handful of sizable, closely watched offerings priced in September — chip maker Arm Holdings, grocery delivery service Instacart, and e-commerce marketing automation provider Klaviyo. But they haven't traded all that well.

• What's next: Not much.

💭 Our thought bubble, via Axios' Dan Primack: Late Q3 momentum doesn't appear to be carrying into Q4, as Birkenstock is the only major company currently on the IPO calendar.

• The big wild card: SEC chair Gary Gensler warned this week that a government shutdown would bring the approval process for new registrations to a halt.

Axios Markets will be open for business on Monday — but there are a lot of question marks in a lot of other places.

What we're watching: If lawmakers don't figure something out by tomorrow, the federal government will shut down.

• Later today, UAW is set to announce whether the union will expand its strike against the automakers.

• On Sunday, the U.S. hits the child care cliff, which threatens to shutter as many as 70,000 day care providers.
• The one thing that's "opening" next week? Student loan payments. After more than three years, borrowers have to start paying money again.