Global stocks experienced declines, with the S&P 500 falling for a second consecutive session, despite a rally in chipmakers. The Dow Jones Industrial Average dropped 1.21% in the first hour of trading after a holiday weekend, the S&P 500 dropped 0.49%, and the Nasdaq Composite fell 0.52%. European and Asian stocks also saw weakness, though South Korean equity-index futures pointed higher.
The downturn was largely attributed to a surge in oil prices, with Brent crude approaching $100 a barrel, reaching $98.28, its highest in six weeks. This increase followed reports of attacks halting operations at several energy facilities in southern Saudi Arabia, along with strong Chinese oil purchases. The rising oil prices intensified concerns about inflation, leading money markets to price in an over 50% chance of a Federal Reserve rate increase this month.
The yen strengthened significantly, gaining nearly 4% in the past week, marking its biggest week-on-week rise since July 2024 and hitting its highest level since February against the dollar. This appreciation was supported by expectations of more restrictive policies from the Bank of Japan and technical momentum. Bond yields also saw movement, with the yield on 10-year Treasuries advancing one basis point to 4.80% ahead of a busy week of government debt auctions, including $58 billion in three-year notes.
Despite the broader market decline, the artificial intelligence theme continued to drive investor interest, particularly in chip stocks. The Philadelphia Semiconductor Index (SOX) gained 1.3% in New York, and Asian chip stocks were expected to open higher. Analysts like HSBC's Willem Sells suggested that current US stock valuations might not fully capture the potential for AI-driven productivity and earnings growth. However, overall market sentiment remained cautious due to geopolitical tensions in the Middle East and upcoming US inflation data, which could influence the Federal Reserve's policy decisions.
