U.S. stocks finished mixed today, with the Dow down 0.31%, S&P 500 essentially flat, Nasdaq up 0.01%, and Russell 2000 down 0.11%. Stocks had been weaker earlier in the session before recovering following reports of renewed diplomatic progress between the U.S. and Iran. Technology was mixed, with memory stocks generally lower, while energy, pharmaceuticals, airlines and hotels were among the stronger groups.
The bigger pressure remained the bond market. Longer-term Treasury yields moved higher again, extending a sharp increase that has pushed borrowing costs throughout the economy higher. Meanwhile, WTI crude rose 2.7%, reversing part of its recent decline as Middle East supply concerns resurfaced.
Bond Yields Remain the Market’s Biggest Problem
Treasury yields continued moving higher today. The increase was particularly pronounced among longer-term bonds, with the 30-year yield rising about nine basis points. A $44 billion auction of 7-year Treasury notes also received relatively weak demand, marking the third disappointing Treasury auction this week.
That comes after the 10-year yield moved above 5.10% yesterday, its highest level since 2007. Over the past month, the 10-year yield has increased roughly 35 basis points. Higher yields matter because they raise borrowing costs for consumers and businesses while simultaneously making bonds more competitive with stocks.
That pressure is already becoming visible. Mortgage rates have climbed back above 7%, even as Thursday’s housing data showed new-home sales holding up better than expected.
The Fed Isn’t Offering Much Relief
Investors hoping the Fed might push back against the recent rise in rates received little encouragement today. Several Fed officials continued emphasizing that inflation remains too high and that additional tightening may be necessary. Markets are now assigning a substantial probability to another rate increase in October, while pricing more than one quarter-point of additional tightening by year-end.
The Fed’s problem remains the same one highlighted by Wednesday’s economic data: the economy continues to perform well enough that policymakers have room to remain aggressive on inflation. Initial jobless claims came in at just 197,000 today, while continuing claims remain near three-year lows.
That’s encouraging for workers and the economy. But for markets hoping for lower interest rates, continued economic resilience makes an early Fed retreat less likely.
Oil Jumps, but Diplomacy Provides Some Hope
Oil prices climbed sharply earlier today after renewed concerns about Saudi supply disruptions, before giving back some of those gains following reports of diplomatic progress. WTI ultimately finished 2.7% higher.
Reuters reported that U.S. and Iranian negotiators are exploring a phased framework that could eventually reopen the Strait of Hormuz in exchange for the U.S. lifting its economic blockade. No agreement has been reached, and the sequencing of concessions remains a major obstacle.
The report was enough to help stocks recover from their lows and pull oil back from its highs. The physical supply picture also remains uncertain. Saudi Arabia has restarted its East-West pipeline, but crude loadings from the Red Sea have been slower to resume than initially hoped, while attacks in the region continue to threaten infrastructure.
For markets, any credible path toward reopening the Strait of Hormuz would be significant because it could remove some of the geopolitical premium embedded in energy prices. But today’s volatile oil trading shows investors are not assuming a deal is imminent.
AI Faces a Different Kind of Risk
The AI investment story also encountered a new concern today. Oracle fell after reports that it invoked force majeure on a massive New Mexico data-center project following permitting and infrastructure delays.
A natural-gas pipeline needed to supply power to the project has been delayed, potentially affecting the timeline for the planned 2.45-gigawatt facility. Debt associated with the development has also fallen in value.
This doesn’t suggest that demand for AI computing is weakening. Instead, it highlights a different challenge: actually building enough infrastructure to satisfy that demand.
The AI boom increasingly requires enormous amounts of capital, electricity, land, permitting and supporting infrastructure. That creates execution and financing risks even when customer demand remains exceptionally strong.
Meta provided the other side of the story, rallying after unveiling new AI hardware and emphasizing strong engagement with its Muse platform.
The AI opportunity therefore remains powerful but investors may increasingly need to distinguish between demand for AI and the economics of delivering all the infrastructure needed to support it.
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