US stock markets saw weekly gains, with the S&P 500 advancing 1.2% and the Nasdaq Composite rising 2.1%, marking their best performances since early August. The Dow Jones Industrial Average also eked out a 0.3% advance, snapping a three-week slide. These gains were largely led by tech-linked stocks, particularly those in the artificial intelligence sector.
Meta Platforms rallied nearly 13% after its Muse AI agent was well-received, while Microsoft climbed more than 4% and Apple and Nvidia each advanced over 1%. Other AI-related companies like Qualcomm and Dell also saw gains. These increases occurred even as the S&P 500 excluding AI names fell 1% for the week, highlighting the significant impact of the AI trade.
Despite the positive stock performance, Treasury yields surged to multi-year highs, with the benchmark 10-year Treasury note reaching levels not seen since 2007 (around 5.17-5.20%) and the 30-year bond yield hitting a 2004 high (around 5.49-5.50%). This rise in yields is attributed to persistent inflation concerns and increased bets on further Federal Reserve rate hikes, with markets now pricing a roughly 70% chance of an October rate hike. Higher rates pose challenges for companies reliant on debt, potentially increasing the cost of AI infrastructure buildout.
Investors are closely watching upcoming economic data, including the August personal consumption expenditure (PCE) price index, the Fed's preferred inflation gauge, due Wednesday. New US manufacturing numbers are expected Thursday, and the crucial September jobs report is set for release on Friday. These reports will be critical in assessing the trajectory of interest rate hikes and their potential impact on the stock market, as higher rates raise borrowing costs and create more competition for stocks from government bonds.
While retail traders appear to be moving to the sidelines, big investors have maintained their positions in stocks despite the spiking Treasury yields. JPMorgan Chase estimated in June that $4.1 trillion in AI-related debt will be issued through 2030, indicating significant financial activity in the AI sector despite rising borrowing costs.
