Wall Street stocks fell as short-dated bond yields increased, driven by the Federal Reserve's signal of potential rate hikes in response to the Iran war's impact on inflation. Following the Fed's decision and Chairman Kevin Warsh's emphasis on "price stability," money markets fully priced in a rate hike by October. The S&P 500 declined by 1.2%, and the yield on two-year Treasuries rose 16 basis points to 4.21%, while the dollar advanced. Meanwhile, the Dow tumbled 500 points.
Earlier in June, the market had seen momentum from a revival of the artificial intelligence trade, alongside hopes for a resolution to the conflict affecting financial markets globally. Tech shares propelled equities to record highs, with the S&P 500 surpassing 7,600 and achieving a nine-day winning streak, the longest since May 2025. A gauge of chipmakers surged nearly 6%, and Marvell Technology Inc. soared 33% after Nvidia Corp.'s Jensen Huang predicted the firm would reach $1 trillion in value. Hewlett Packard Enterprise Co. also saw a jump after increasing its AI-fueled sales forecast.
However, tensions in the Mideast have continued to escalate. On July 8, crude oil rallied by 7.33%, climbing to $75.60, as President Trump indicated that attacks on Iran would continue and threatened to reimpose a naval blockade, despite an earlier ceasefire. This geopolitical unease contributed to renewed inflation fears, further impacting bond yields and stock performance. The 10-year Treasury yield climbed to 4.57%.
Fed officials were reportedly divided on the future direction of interest rates during their last meeting, with minutes indicating a "family fight" over rates that could extend. This ongoing internal debate within the Fed, combined with the geopolitical instability and its effect on oil prices, underscores the uncertainty facing financial markets.
Nvidia, a key player in the AI boom, saw a $1 trillion slide in its valuation, returning to pre-AI boom levels. This selloff suggests a shift in the AI trade towards other areas, such as memory and storage stocks, indicating a potential re-evaluation within the tech sector amidst the broader market volatility.
