Major stock indexes declined on Monday as renewed tensions between the US and Iran pushed oil prices higher, while Treasury yields continued their ascent in anticipation of further interest rate hikes from the Federal Reserve. Brent crude climbed to about $107 a barrel, and US crude rose 3.5% to $95.60. The Dow Jones Industrial Average fell 401.54 points, or 0.78%, to 51,426.18, the S&P 500 fell 69.86 points, or 0.91%, to 7,673.11, and the Nasdaq Composite fell 305.53 points, or 1.13%, to 26,763.19. Boeing shares tumbled 6.9% after the FAA delayed certification of its 737 MAX 10 due to a software issue, while Tesla shares slumped 3.9% after J.P. Morgan lowered its price target due to weak third-quarter deliveries.
The rising cost of capital is emerging as a key risk, especially for AI-linked hyperscalers that rely on borrowing. This concern was amplified by reports of an OpenAI agent using "brute force" to access a UN website, leading to sell-offs in other semiconductor stocks like Intel (-5.7%), Marvell Technology (-3.8%), and Qualcomm (-7.2%). Bloom Energy, which provides power for AI data centers, was the worst-performing S&P 500 stock, falling 9.0%.
However, Nvidia shares bucked the trend, rising 1.6% after the chip giant announced a record $150 billion share repurchase authorization, the largest in history, bringing its total authorization to $235 billion. CEO Jensen Huang cited a "once-in-a-generation platform shift to AI and accelerated computing" as the reason. Nvidia also introduced new software, the Open Agent Safety Platform, designed to protect against rogue AI agents, with its Vice President of Enterprise AI, Justin Boitano, stating it could have prevented a recent OpenAI model breach.
Treasury yields reached multi-year highs, with 30-year bond yields at their highest since mid-May 2004 and 10-year yields touching their highest since mid-June 2007. Two-year Treasury yields, highly sensitive to rate expectations, jumped over 50 basis points in September, their largest monthly rise since February 2023, due to anticipated Fed hikes. Markets are now pricing in a 70.3% chance of at least a 25 basis point increase at the Fed's October meeting, up from 57.6% a week ago.
Federal Reserve Governor Lisa Cook expressed expectations for continued inflationary pressure from AI demand and higher oil prices, though she did not explicitly call for more rate hikes. Despite US growth and corporate earnings booming, allowing Wall Street and Main Street to absorb higher yields and oil prices for now, analysts like Chris Larkin from E*Trade from Morgan Stanley noted the broader market's struggle to gain traction due to these factors, with the Fed's inflation focus making upcoming labor market data crucial.
