S&P 500 (Thu)
7,744.06
wk −0.9%
September CPI beat forecasts and wholesale prices rose 6.3% from a year earlier, the most since 2022. Yet the 10-year fell to about 5.1%, its lowest in three weeks, as a chip rout that hit Seoul hardest turned into a test of how the AI build-out is financed. Through Thursday the Dow was up 1% on the week and the Nasdaq down 2.4%.
On paper this was the week the bond market should have broken. September consumer prices rose 3.7% from a year earlier, above forecasts, with core inflation hotter than expected too. A day later, producer prices showed a 6.3% annual rise, the biggest since 2022. Odds of an October rate hike jumped to roughly even. Instead, the 10-year Treasury yield finished Thursday at 5.085%, its lowest close since Sept. 23, and was trading near 5.1% on Friday — about 14 basis points lower on the week.
What changed the bond market’s mind was not inflation. It was fear about how the AI build-out is being paid for. CoreWeave’s bonds and shares slid, South Korea’s market fell 8% in a session, and chip stocks extended a losing streak that by Friday was on course to be the longest since 2006. Money moved into Treasuries, health care and consumer staples, and out of technology. Through Thursday’s close the Dow was up 1.0% on the week, while the S&P 500 was down 0.9% and the Nasdaq 2.4%. Friday’s session was still under way as this went out, with the same rotation intact.
A quiet Monday, a split verdict from the banks on Tuesday, an inflation scare on Wednesday, a global chip rout on Thursday that Wall Street somehow closed higher, and a Friday in which the Fed chair declined to help. The gap between the Dow and the Nasdaq — more than three percentage points through Thursday — is the week in one number.
Headline CPI rose 0.6% in September, as expected, but the annual rate climbed to 3.7% from 3.4%, a tenth above forecasts. Gasoline jumped 9.1% on the month and accounted for more than half the increase; energy prices are up 20.4% from a year ago. The more troubling number was the core. Prices excluding food and energy rose 0.3% against 0.2% expected, for a 2.6% annual rate, with shelter, airfares and used cars doing the damage. Real average hourly earnings fell 0.5% on the month and are down 0.7% from a year ago.
Markets reacted the way they had to. October hike odds roughly doubled to around 50%, the 10-year rose about 6 basis points to 5.28%, and the S&P fell 1.1% to 7,718.94. The Nasdaq lost 1.9% and the Russell 2000 1.9%, as technology dropped 3% while health care and consumer staples each gained more than 2%. Bank of America added to the gloom: earnings of $1.08 a share missed the $1.10 consensus, ending a six-quarter run of beats, after a $1.2 billion non-deductible penalty from the OCC and FinCEN over anti-money-laundering and sanctions failures cut 17 cents a share. Revenue of $29.96 billion also fell short, and the stock fell about 5% in morning trading.
The selloff that started on Wednesday went global overnight. South Korea’s Kospi plunged about 8%, triggering a 20-minute trading halt, as SK Hynix lost more than 11% and Samsung Electronics about 10%. Japan’s Nikkei fell as much as 5%, with Kioxia and SoftBank Group both sharply lower. The common thread was financing. Higher-for-longer rates raise the cost of funding data centers, GPUs and memory capacity, and CoreWeave — whose shares fell more than 15% on Wednesday and some of whose bonds traded near 80 cents on the dollar — has become the market’s gauge of AI credit risk. The cost of insuring its debt hit a record this week. Chinese memory maker CXMT’s progress on a new chip design added to the pressure on memory prices.
TSMC didn’t change the mood. The chipmaker posted its sixth straight record quarterly profit, up 68.7% from a year earlier, and guided fourth-quarter revenue to $52.3–$54.3 billion, a 14% sequential rise at the midpoint, with spending over 2026–2028 set to be significantly higher. But its gross margin slipped to 66.4% from 67.7% on 2-nanometer ramp costs, and its U.S.-listed shares fell about 4%. The economic data was hot on every count: producer prices up 1.3% on the month and 6.3% on the year, retail sales up 0.8% against 0.3% expected, and jobless claims at a low 199,000.
And yet the 10-year fell 10.5 basis points to 5.085%, the 2-year dropped to 4.75% and the 30-year to 5.43%. An unconfirmed report that an AI-focused fund had blown up briefly knocked stocks lower before dip-buyers stepped in. By the close the Dow had gained 1.1% to 52,177.69, the Russell 2000 1.4% and the S&P 0.3%, while the Nasdaq barely held a 0.1% gain. U.S. crude rose $2.50 to $97.59 after an 8.6-million-barrel inventory draw.
| Index | Thu close | Week (thru Thu) | YTD |
|---|---|---|---|
| S&P 500 | 7,744.06 | −0.9% | +13.1% |
| Dow Jones | 52,177.69 | +1.0% | +8.6% |
| Nasdaq Composite | 26,713.03 | −2.4% | +14.9% |
| Russell 2000 | 2,767.27 | −1.4% | +11.5% |
The big banks confirmed that trading desks are busy and credit is holding up, and still struggled to rally. Goldman Sachs was the standout, earning $17.01 a share against $13.02 expected as equities trading revenue jumped 72% to $6.44 billion. JPMorgan’s net income rose 6% to $15.3 billion on revenue up 8% to $50.2 billion, but its $5.57 a share missed the $5.90 consensus after $658 million of losses on investment securities; excluding them it earned $5.75, and the stock edged up. Citigroup beat with $2.85 a share on revenue up 8%, yet fell about 5.6% as markets revenue dropped 13% from the second quarter and credit-loss provisions rose. Wells Fargo earned $1.87 a share with net interest income up 5%. Bank of America’s net charge-off ratio actually improved to 0.44%. The message: no sign yet of consumer stress, but in a market this nervous, anything short of a clean beat gets sold.
Speaking at the IMF and World Bank meetings in Bangkok, Fed Chair Kevin Warsh declined to signal what the Fed will do on Oct. 28, saying he doesn’t prejudge meetings. He said the global economy has held up better than he expected, described this year’s wave of rate increases around the world as synchronized tightening, and called AI probably the most consequential economic change of his lifetime — one that is raising prices through demand today and should expand capacity later, on a path he expects to be very bumpy. New York Fed President John Williams said one more hike may be appropriate. October hike odds slipped back below 30%, while markets still put the chance of a December move near 90%. The Fed’s quiet period starts Saturday.
The data kept the pressure on: industrial production rose 0.7% in September against 0.4% expected, and import prices rose 1.1% on the month and 8.1% from a year ago. By midday, the Dow was holding small gains while the Nasdaq was down about 1% and the S&P around half a percent lower. Semiconductor stocks were headed for a ninth straight decline, the longest streak since 2006; CoreWeave fell about 9%; and the selling spread to software, with CrowdStrike, Palo Alto Networks and Snowflake each down about 7%. Utilities, materials, energy and staples led. Alcoa gained more than 6% after adjusted earnings of $1.82 a share beat the $1.49 forecast.
The week delivered the inflation surprise the Fed feared and the bond rally the market wanted, for reasons that should worry equity investors. Yields fell because money left the AI trade, not because inflation cooled. That rotation helped the Dow, small caps on Thursday and defensive sectors, and it left the S&P on course for a weekly loss. Two questions now drive the market. Can AI revenue keep pace with AI borrowing? And will the Fed, facing 3.7% inflation and a December hike already priced, look through a chip rout that tightens financial conditions on its own? The Fed meets Oct. 27–28. Before then: Netflix on Tuesday, a growing stream of earnings, and the final October sentiment survey on Oct. 23.
September CPI rose 3.7% with core above forecasts, PPI hit 6.3% — the most since 2022 — and October hike odds briefly reached about 50%. But the 10-year fell to about 5.1% as an AI-credit scare took over: CoreWeave’s debt came under pressure, the Kospi fell 8%, and chip stocks headed for a ninth straight loss. Through Thursday the Dow was up 1.0% on the week while the S&P fell 0.9% and the Nasdaq 2.4%. Goldman beat big, Bank of America missed on a $1.2 billion fine, and Warsh gave nothing away. Watch AI financing, not just CPI.