10-year yield hits 5.02% as the Fed meets, after a 5.9% chip rout
Chips fell 5.9% Monday while security stocks jumped. The 10-year yield touched 5.02% overnight, and the Fed's two-day meeting starts with hike odds at 92%.
The 10-year Treasury yield touched 5.02% overnight, its highest since 2007, as the Federal Reserve opens a two-day meeting that traders price as a near-certain rate hike. That is the backdrop for this open, more than the AI story that dominated Monday: stock futures are lower, but the pressure this morning is coming from rates and oil.
Monday’s selloff was narrower than the indexes suggest
The S&P 500 fell 0.48% to 7,619.98, the Nasdaq Composite 0.56% to 26,186.41 and the Dow Jones Industrial Average 152.09 points, or 0.29%, to 52,421.20. Headlines called it a slide. The breadth says otherwise: in our feed, 55 of the 100 stocks and funds we track finished higher. Another 44 of the 100 fell, and one was unchanged.
That gap is the story. The losses were concentrated in a handful of heavily weighted chip stocks, which pulled the indexes down while most large companies rose. SPY, the S&P 500 fund, lost 0.45%, but IWM, the small-cap fund, lost only 0.34% and DIA, the Dow fund, 0.25%.
It was also far milder than Monday morning looked. Nasdaq futures had been down 1.61% before the open after the weekend’s AI warnings; the Nasdaq closed down 0.56%.
The AI warnings split technology in two
The Philadelphia Semiconductor Index fell 5.9%, according to Bloomberg. In our feed, Arm Holdings (ARM) fell 9.74% to $239.01, the worst of the 100. Applied Materials (AMAT) lost 7.07%, Intel (INTC) 5.59%, Micron (MU) 5.25%, Broadcom (AVGO) 4.77% and AMD 4.40%. Nvidia (NVDA) fell 3.36% to $210.96 on 131.9 million shares, again the heaviest volume in the feed. Oracle (ORCL) extended Friday’s reversal, falling 3.65% to $144.79. XLK, the technology fund, dropped 1.81%.
Software and security went the other way. CrowdStrike (CRWD) rose 13.85% to $235.38 and Palo Alto Networks (PANW) 13.09% to $373.94, the two best performers in our feed. Our movers feed showed Zscaler up 16.45%, Okta 12.05% and SentinelOne 14.49%. Cloudflare (NET) gained 7.77%, ServiceNow (NOW) 7.41%, Adobe (ADBE) 5.30% and Salesforce (CRM) 4.73%.
The reading in the coverage was the same on both sides. Anthropic CEO Dario Amodei wrote over the weekend, “We must slow the pace at which we improve the capabilities of A.I. models,” and OpenAI’s Sam Altman agreed. Chipmakers, whose sales depend on that pace, sold off. Security companies rallied on the view that a more dangerous AI environment means more security spending, 24/7 Wall St. reported. CrowdStrike CEO George Kurtz argued the labs will keep advancing regardless, which makes security’s job to make that development safer.
The largest software platforms held up too. Microsoft (MSFT) rose 1.97% to $505.41, Alphabet (GOOGL) 3.22% and Meta (META) 2.71%.
Yields at 5% and a warning from Bank of America
The 10-year Treasury yield briefly reached 5% on Monday for the first time since 2023, then touched 5.02% overnight, which the Associated Press and CNBC described as its highest since 2007. Japan’s 10-year government bond yield moved back above 3%, a 30-year high, the AP reported. Coverage tied the bond selloff to fears that the US-Iran war and high oil prices will keep inflation elevated and push central banks toward hikes.
Banks had their own problem. Bank of America (BAC) fell 5.14% to $59.47 after CEO Brian Moynihan told the Barclays financial services conference that third-quarter investment banking fees would come in between $1.6 billion and $1.8 billion, down at least 10% from a year earlier, with trading revenue roughly flat. The selling spread. Goldman Sachs (GS) fell 3.96%, Morgan Stanley 3.64%, Citigroup 1.90%, Wells Fargo (WFC) 1.75% and JPMorgan (JPM) 1.71%.
Gold did not benefit from the nervousness. GLD, the gold fund, fell 1.49% to $392.84, while TLT, the long-bond fund, was essentially flat, up 0.07%. The defensive money went to health care and consumer staples instead: XLV, the health care fund, rose 1.45%, Eli Lilly (LLY) 2.02%, Walmart (WMT) 1.80% and Coca-Cola (KO) 1.20%.
Overnight: oil up, Asia mostly lower, China’s consumer weak
S&P 500 futures were down 0.38%, Dow futures 240 points or 0.45%, and Nasdaq 100 futures 0.46% early Tuesday, CNBC reported. Unlike Monday morning, the Nasdaq is not falling much faster than the Dow, which fits a morning driven by rates rather than AI.
Brent crude rose 1.52% to $107.29 and US crude 1.84% to $103.26, according to the AP, after fresh attacks involving Yemen’s Houthis and threats to Saudi Arabia’s east-west pipeline. In our feed, XLE, the energy fund, fell 0.94% on Monday despite oil’s strength.
In Asia, the AP’s early update had Japan’s Nikkei 225 up 0.2% at 63,621.08, helped by SoftBank Group, which jumped about 8% in afternoon trading after Monday’s plunge. South Korea’s Kospi fell 0.8% to 6,628.99, Hong Kong’s Hang Seng 0.6% to 24,773.37, the Shanghai Composite 0.2% and Australia’s S&P/ASX 200 0.9%.
China’s August data was mixed. Industrial output grew 5.2% from a year earlier, above the 4.8% forecast in a Reuters poll, but retail sales rose just 0.4%, short of the 0.8% expected. Fixed-asset investment fell 7.2% in the first eight months of the year.
What to watch today
- Empire State manufacturing survey for September, 8:30 a.m. ET.
- The Federal Reserve’s two-day meeting begins today. The decision is Wednesday at 2 p.m. ET, and fed funds futures price about a 92% chance of a quarter-point hike, CNBC reported.
- The Treasury sells $18 billion in 20-year bonds at 1 p.m. ET, a direct read on demand with the 10-year yield near 5%.
- The 9:30 a.m. ET open for Nvidia, Arm, CrowdStrike and Palo Alto Networks, after Monday’s split.
- Bank stocks after Bank of America’s fee warning.
- August retail sales, Wednesday at 8:30 a.m. ET. Bank of Japan decision, Friday.
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