The S&P 500 index fell by 1.1%. The Philadelphia Semiconductor Index closed down 4.3%, recording its longest streak of declines since May 2025. Sandisk tumbled more than 5%, while Seagate Technology, Western Digital, and Micron Technology each fell more than 4%. NVIDIA, Broadcom, and Facebook all fell more than 3%. Morgan Stanley lost 2.70%, and Bank of America dropped 4.71%. Gold fell 1.4% to around $4,100, and Bitcoin broke below $82,000. WTI Crude oil rose by 1%.

With stubborn inflation, widening credit gaps indicated by AI, and rising oil prices, three major pressures struck simultaneously. On Wednesday, U.S. stocks suffered a heavy setback, with technology and semiconductor stocks leading the decline. The dollar rose to its highest level in 18 months, and market expectations for Federal Reserve interest rate hikes were rapidly re-priced.

In September, the U.S. market saw a rise that exceeded expectations, suddenly intensifying market bets that the Federal Reserve would maintain high interest rates for an extended period. The S&P 500 index fell by 1.1%, while the Nasdaq 100 index, which is heavily weighted with technology stocks, tumbled 2%, recording its largest single-day decline in three months.

The small-cap stock index, Russell 2000, has entered a technical adjustment zone. The chip index tumbled 4.3% in a single day, closing down for the sixth consecutive trading day, setting a new record for the longest streak of declines in nearly two years.

At the same time, there are obvious cracks in the corporate bond market related to AI. The bond price of cloud computing company CoreWeave has fallen to a level that usually indicates financial difficulties, and the company's stock price tumbled by more than 15% in a single day.

The US Dollar Index reached a high since May 2025, gold fell by 1.4% to around $4,100, and Bitcoin dropped below $82,000. WTI Crude oil rose by 1% due to tensions in the Middle East, exceeding $95 per barrel, further exacerbating inflationary pressures.

Inflation exceeds expectations, raising the stakes for interest rate hikes

In September, the data from the United States CPI became the direct trigger for this round of market turmoil.

In September, the United States saw a year-on-year increase of 3.7% in CPI, with the core CPI rising to 2.6%, both exceeding expectations. Energy and service prices contributed to higher inflation. Following the release of the data, market bets on a Fed interest rate hike in October temporarily rose to 50%, while the probability of a hike in December soared above 95%.

The yield on 10-year U.S. Treasury bonds soared sharply at one point during trading, but then fell back as the risk-aversion sentiment returned due to the decline in the stock market. In the end, it decreased slightly by 2 basis points to 5.19%.

TD Securities Strategist Oscar Munoz and Gennadiy Goldberg indicate:

Today's report has increased the probability of a rate hike in October, but we still believe that the Federal Reserve will choose to wait and see, acting only in December. Currently, the market itself is already taking on some of the tightening measures on behalf of the Federal Reserve.

The Seema Shah of Principal indicates that the market is currently under significant pressure, but the latest reports are not sufficient to reignite expectations for a rate hike in October. The Skyler Weinand of Regan Capital suggests:

Inflation is stubborn and evolving in the wrong direction, which is now obvious. We expect the Federal Reserve to pause interest rate hikes in October, but to resume them in December.

Jeff Roach pointed out that inflationary pressures have spread from the energy sector to a wider range of areas, indicating that the 'last mile' towards returning to target rates remains bumpy and will keep interest rates high for an extended period of time.

Fed Chair Powell previously stated that he would not send forward-looking signals to the market regarding recent monetary policy trends. However, this inflation that exceeded expectations will draw high attention to his conversation with IMF Managing Director Kristalina Georgieva in Bangkok on Thursday evening (New York time).

AI Credit cracks widen, adding to the woes of tech stocks

This round of market turmoil is not only due to inflationary pressures at the macro level, but the accelerating deterioration of the corporate bond market related to AI has also raised particular concerns among professional investors.

CoreWeave Bonds with a yield of 9.75% issued in July this year and maturing in 2031 saw their yield soar to 16% on Wednesday, while the price dropped to a new low. CoreWeave Credit default swaps ( CDS ) widened by more than 135 basis points in a single day.

Oracle's 4.9%, bonds maturing in 2033 also hit a historical low, and the Meta Platforms company's bonds maturing in 2049 are also hovering near the low level of their issue price. All of the aforementioned bonds have fallen by about 20% since their issuance.

A report from research firm Gartner has further exacerbated market concerns. Will Sommer, the senior analyst director at Gartner, predicts that if infrastructure spending continues at the current rate, 80% of cloud service providers will cease independent operations by 2030.

He pointed out that in 2026, AI providers are expected to spend nearly $1 trillion on AI infrastructure, and an additional $6 trillion will be invested between 2027 and 2030. However, the AI revenues from enterprises and consumers will not be sufficient to support all the planned capital expenditures and achieve a return on investment.

What is concerning is not just the debt of data centers. As the yield spread on "three C-rated" (i.e., the highest-risk level of junk bonds) bonds has exceeded 1,000 basis points, credit pressure is spreading up along the credit rating curve. The yield spreads on investment-grade ( IG ) and high-yield ( HY ) bonds are also rising, approaching their highs after the US-Iran conflict.

Bloomberg macro strategist Tatiana Darie pointed out that the dimening financing prospects pose a credit transmission risk to the highly correlated AI market, and concerns about circular financing could suddenly become a reality.

US semiconductor sector experiences six consecutive declines, highlighting valuation pressures

The three major U.S. stock indices closed lower: the S&P 500 fell 1.11% to 7,718.94 points, the Nasdaq Composite Index fell 1.88% to 26,692.87 points, the Dow Jones Industrial Average fell 0.09% to 51,621.48 points, and the Russell 2000 Index fell 1.9%.

The Philadelphia Semiconductor Index fell 4.3%, marking the longest consecutive decline since May 2025. AI infrastructure stocks led the decline, with CoreWeave falling 15.29% and Oracle falling 8.80%.

The credit crisis in the tech industry is beginning to drag down tech stocks.

Chip stocks weakened simultaneously. Micron Technology fell 4.08%, Sandisk fell 5.33%, AMD fell 5.73%, Intel fell 4.56%, and NVIDIA fell 3.16%. The seven tech giants have supported the market in the past few days, but today they followed the overall market trend and weakened as well.

BTIG, the Chief Technical Market Strategist, believes that the probability of a short-term rebound in chip stocks is increasing, but the next rebound should be seen as an opportunity to reduce holdings. He still holds to his judgment of a "red October."

It's not just tech stocks that have been hit; the poor performance of Bank of America has dragged down the financial sector, which is also affected by risks related to artificial intelligence.

Bank of America set aside $1.21 billion for regulatory fines, with net profit down 17% year-on-year, and earnings per share falling to $0.91. Excluding these fines, earnings per share were $1.08. The stock closed down 4.76%, with a temporary drop of 8.3% during the session, marking the largest intraday decline since April 2025.

Morgan Stanley's earnings and revenue in the third quarter both exceeded expectations, yet its stock price still fell by 2.70%. The S&P 500 Bank Index hit a multi-month low during trading. BlackRock was one of the few bright spots, with adjusted earnings per share of $15.93 and its managed assets rising to $15.49 trillion, with its stock price closing up 0.72%.

Funds have clearly shifted towards a defensive stance. Both Chevron and ExxonMobil in the oil and gas sector have seen gains of over 1%. Berkshire Hathaway achieved a streak of 10 consecutive days of increases on Wednesday, for the first time since January 2018.

At the same time, dividend stocks jokingly referred to as the "American Maotai" by investors, such as Coca-Cola, as well as essential consumer stocks like Procter & Gamble, Walmart, and Costco, generally saw strength. Medical stocks including Pfizer, Eli Lilly, Merck, and UnitedHealth also rose against the market trend. This indicates that against the backdrop of rising interest rates and a cooling in AI trading, investors are focusing on entering safe-haven stocks that possess pricing power, stable dividends, and low profit volatility.

UBS Chief Investment Officer Ulrike Hoffmann - Burchardi believes that this round of adjustments is more of an expected recalibration. She stated:

Increasing competition in the AI sector, rising financing demands, and higher interest rates may periodically drive up volatility. However, we view this round of adjustments as a recalibration of expectations, rather than a fundamental break in the AI investment narrative.

Bloomberg macro strategist Michael Ball pointed out that as the leading gains in the semiconductor and AI sectors begin to weaken, higher yields and interest rate volatility are increasingly becoming negative forces for the stock market, which is reflected in the overall weakness of the market breadth.

He warned that if rising yields further suppress the valuations of tech stocks, the support for the Nasdaq 100 index will be put to the test. When no new market leaders emerge, the correlation among a broader range of risk assets will increase.

From a technical perspective, the S&P 500 index has fallen below the key support range of 7775 to 7750. The SpotGamma model indicates that 7775 is the trigger point for index fluctuations. Once it continues to fall below this level, the hedging activities of market makers and the dynamics of volatility will change. If it further breaks below 7700, the positive support from gamma will be significantly weakened.

Rising oil prices exacerbate inflation concerns, and the energy market continues to tighten.

In addition to the dual pressures of inflation and AI credit, the turmoil in the energy market constitutes the third dimension of this round of "triple strikes." WTI Crude oil prices rebounded above $95 per barrel on Wednesday, hitting a three-week high.

It is reported that a cargo ship caught fire and sank after being attacked, forcing the crew to evacuate. Another cargo ship was also attacked and suffered damage to its hull. Emily Ashford, the head of energy research at Standard Chartered Bank, stated:

The developments of the past week once again remind the market that the resumption of transport traffic does not equate to safe transport traffic. As infrastructure and shipping continue to face threats, it is difficult for risk premiums to diminish.

Meanwhile, the mutual attacks on energy infrastructure between Russia and Ukraine continue, with diesel prices in Europe having more than doubled this year. Retail diesel prices in the United States remain near record highs, putting continuous upward pressure on the US CPI.

The US dollar strengthens, putting pressure on gold and cryptocurrencies

After the inflation data was released, the US dollar index rose by 0.3%, with the Bloomberg US Dollar Spot Index reaching its highest level since May 2025, breaking out of a 18-month range consolidation pattern. The euro fell by 0.4% to $1.1155, and the pound sterling fell by 0.5% to $1.3190.

Gold spot prices fell 1.4% to around $4,100 per ounce, while silver prices tumbled even more by 6.5%, both returning to levels not seen in nearly two months.

The increase in actual yields has reduced the attractiveness of non-yielding assets, but gold has found initial support around $4,100.

Bitcoin fell 1.9% to around $81,789, breaking below the $82,000 mark; Ethereum dropped 3.2% to around $2,428. Analysts pointed out that Bitcoin has played more of a role as a high-beta tech asset during this turmoil, rather than a "de-dollarization" hedge tool.

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Edit / stephen

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