Wall Street began the week cautiously, as a selloff in chipmakers overshadowed a decline in oil prices. This was influenced by Treasury Secretary Scott Bessent's plan to isolate Iran from the global economy. Days before Nvidia Corp.'s earnings, semiconductor giants experienced a downturn, with Nvidia's shares falling for a seventh consecutive session, marking its longest slump since 2022. The sector was rattled by reports of over 15% AI-related price hikes for some of the chipmaker's largest customers, leading to a 5.9% slip in an ETF tracking memory shares and a 1% loss for the Nasdaq 100.
The S&P 500 fell 0.3% to 7,652.86, moving further from its all-time high, while the Nasdaq composite dropped 0.8% or 200.26 points to 25,980.19. The Dow Jones Industrial Average, however, added 140 points or 0.3% to 53,417.16. Tech stocks led the decline, fueled by worries that the enthusiasm around AI technology had driven prices too high and that the demand for AI chips might not be sustainable if they don't generate sufficient profits. Nvidia was the heaviest weight on the S&P 500, sinking 2.9%, with Micron Technology down 5.8% and Broadcom down 2.6% also contributing to the index's drag.
The bond market continued to be a significant factor, with longer-term Treasury yields rising throughout the summer due to concerns about high inflation, substantial government debts, and other factors. High yields increase borrowing costs for everyone, impacting sectors like housing. The U.S. Treasury Department's surprise move last week to increase the size of planned Treasury buybacks, which could exceed the initial $4 billion, aimed to contain the rise in 10-year and 30-year Treasury yields. However, analysts cautioned that this move might have limited effectiveness, as it doesn't address the fundamental issues of high U.S. government debt and expensive oil prices stemming from the conflict with Iran. Hardika Singh of Fundstrat Global Advisors noted that the "Bessent put" is likely to fail in keeping yields down over the longer term, and bringing down debt will require painful work.
On Monday, the yield on the 10-year Treasury eased to 4.70% from 4.74% on Friday, also below its level before the Treasury's announcement. This easing was partly attributed to a drop in oil prices, with Brent crude falling 2.3% to $90.54 per barrel. Despite this, analysts warned that government intervention in the bond market could ultimately heighten inflationary pressures, which are already higher than desired. This situation increases pressure on the Federal Reserve to potentially raise the federal funds rate, which affects short-term overnight loans and could curb inflation by slowing the economy and undercutting investment prices. Ulrike Hoffmann-Burchardi of UBS Chief Investment Office stated that while the Treasury intervention showed discomfort with rising yields, it doesn't fundamentally change the rate outlook. Federal Reserve Bank of San Francisco President Mary Daly suggested the Treasury market signals that monetary policy is currently well-placed, dismissing concerns about credibility or an urgent need for preemptive rate hikes or cuts. Meanwhile, Broadcom Inc. is reportedly in talks to raise over $60 billion in debt for an AI chip financing deal that would benefit Anthropic PBC, which is expected to match or exceed SpaceX's record IPO.
