Wall Street’s rally ran out of steam on Thursday as rising Treasury yields, mixed corporate earnings and fresh uncertainty over inflation prompted investors to ease off the accelerator.
The S&P 500 slipped 0.2%, the Nasdaq Composite edged 0.1% lower and the Dow Jones Industrial Average dropped 0.9%, bringing its record-breaking winning streak to an end after several strong sessions.
A familiar theme continues to dominate markets. Investors remain happy to back artificial intelligence, but they’re becoming far less forgiving when companies fail to justify the huge spending required to stay competitive.
That was clear again after earnings from memory and storage names Sandisk and Western Digital, with both stocks coming under pressure as investors questioned whether AI investment is translating into enough profits.
The selling wasn’t limited to chip-related companies either. Software names including Datadog, Figma and HubSpot also fell after reporting results, showing that even solid earnings are no guarantee of a positive market reaction when expectations have been pushed so high.
SpaceX shares briefly surged earlier in the day before giving back most of those gains as a lock-up period expired, allowing insiders to begin selling stock and adding another source of volatility to the session.
Oil Climbs
Oil climbed to around $83 a barrel, keeping inflation concerns alive and pushing Treasury yields even higher.
The 10-year Treasury yield rose to 4.67%, while the 30-year reached 5.21%, levels that continue to weigh on richly valued growth stocks because higher borrowing costs reduce the appeal of future earnings.
Some investors also pointed to growing expectations that the Federal Reserve may be reacting too slowly to inflation risks. Higher oil prices, together with rising inflation expectations, have encouraged bond investors to demand greater returns for holding long-term US debt.
Alphabet’s Bond Sale Highlights AI Demand
There was one bright spot for AI, although it came from the debt market rather than the stock market.
According to Bloomberg, Alphabet attracted roughly $115 billion of investor orders for its latest bond sale, more than four times the planned offering size of up to $25 billion.
The level of demand comfortably exceeded recent AI-linked debt offerings from companies including Amazon and SpaceX, suggesting investors remain willing to finance the sector even after the recent sell-off, particularly as Alphabet offered attractive pricing concessions.
US Jobs Report Up Tomorrow
Attention now turns to Friday’s monthly US jobs report, which could have a major say in whether the Federal Reserve cuts interest rates in September.
A stronger labour market would reinforce concerns that inflation could remain stubborn, while weaker hiring may strengthen the case for lower borrowing costs.
