Wall Street Morning Post: The AI bull market is facing an interest rate trial, funds are turning to defensive assets, and 30-year treasury bonds are the next test
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Long-end yields hit their highest since 2002, oil prices oscillated at high levels, gold and silver came under pressure
The three major U.S. stock indexes closed lower collectively, with the Dow Jones Industrial Average down 0.66%, the S&P 500 down 0.22%, and the Nasdaq Composite down 0.22%, ending a five-day winning streak. The Russell 2000 fell 1.31%, with small-cap stocks under continuous pressure and rate-sensitive assets bearing the brunt.
The pressure came from the bond market. The 10-year U.S. Treasury yield touched 5.36% intraday, the highest since 2002, and closed at about 5.28%; the 30-year yield spiked to 5.732% intraday, also a high since May 2002. French fiscal concerns reignited, with the France-Germany 10-year spread widening to about 140 basis points, while the U.K. 30-year gilt yield rose as high as 6.04%, a 28-year high. The global bond selloff swept across the Atlantic, directly pushing up discount rates.
The $39 billion 10-year Treasury auction became the day's only breathing point, with a high yield of 5.300%, the highest since November 2000, but a bid-to-cover ratio of 2.77 times, a new high since 2016, with overseas demand near a record and the non-dealer allotment ratio reaching a historic peak. Yields briefly fell after the auction, and stock index losses narrowed accordingly. Goldman Sachs rates strategy head William Marshall remains bullish on yields falling back to 4.75% by year-end; Barclays, meanwhile, raised its Q3 2027 10-year forecast to 5.25%, arguing that with a resilient economy there is almost no catalyst for a drop below 5%. But the bond market is not yet safe. At 1 a.m. on October 9, the U.S. will auction $22 billion of 30-year Treasuries, the next key test. If demand is weak, long-end yields could spike again, and U.S. stocks will remain under pressure.
The Federal Reserve's September meeting minutes were hawkish, with all 19 officials unanimously supporting a 25 basis point rate hike to 3.75%-4%, and most participants believing another increase before year-end may be appropriate. The minutes emphasized that inflation remains elevated, with geopolitical factors pushing up oil prices and surging AI investment jointly intensifying pressure. The New York Fed survey showed one-year inflation expectations rose to 3.9%, a more than three-year high, with household financial expectations deteriorating in tandem. The market is currently pricing about a 22% chance of an October hike and still assigns a relatively high probability to another increase before year-end.
U.S. media reported that the Pentagon has instructed Central Command to prepare for restarting large-scale combat operations against Iran, with Trump weighing the timing, and action possibly before the November 3 midterm elections or even the Israeli election. Potential targets include energy, infrastructure, and nuclear facilities. Brent crude remained above $100 per barrel, while WTI fluctuated in the $88-$90 range. IMF Managing Director Georgieva warned that even if the Gulf conflict ends soon, high oil prices could persist until 2027. Tanker attacks set a single-week record, with the cost of very large crude carriers to Asia surging to $77 million, significantly raising supply chain costs.
The dollar index rose about 0.4% to around 102.27, while the euro approached a 17-month low of 1.12. A strong dollar and high rates jointly pressured precious metals: spot gold fell about 1.3%, touching an intraday low of $4,066, the lowest since August 5; spot silver fell about 2.6%. Taking advantage of the gold price pullback, China's central bank increased its gold holdings for a 23rd consecutive month, with reserves rising to 77.47 million ounces at the end of September. Zaner Metals strategist Peter Grant noted that the market signal is that rates will stay higher for longer, supporting the dollar and Treasury yields, but official gold-buying demand remains a medium-term support for gold.
Defensive sectors led gains, while AI and semiconductors continued to devour capital
Defensive sectors such as healthcare, consumer staples, and utilities were relatively prominent, while industrials and materials led declines. Goldman Sachs' trading desk showed flows were clearly skewed to selling on the day, with long-only fund selling skew at -25%, concentrated in macro products and tech stocks; hedge fund short ratios rose to a near two-week high. High-quality asset portfolios surged, while shorted assets fell to a more than two-month low, as the market began rewarding companies with healthy balance sheets.
The AI financing wave continued to devour capital. Broadcom is seeking more than $50 billion in financing for custom AI chips for OpenAI, with Apollo and Blackstone among those already in talks; the project is internally called "Nexus," with first- and second-generation chips codenamed Jalapeño and Serrano. Oracle is in talks with Apollo and Goldman Sachs for chip financing; SpaceX is seeking about $40 billion to buy Nvidia chips, including about $10 billion in bank loans and $30 billion in investment-grade bonds, with Apollo expected to lead and Pimco participating. Yorkville Ives' Dan Ives gave SpaceX an "outperform" rating and a $225 price target, saying that locking in Nvidia chips through bond issuance can strengthen the launch, Starlink, and AI flywheel.
Samsung's third-quarter operating profit was about 107.4 trillion won, surging 783% year over year, surpassing 100 trillion won for the first time in history and setting a record for the fourth consecutive quarter; revenue was about 195 trillion won, up 127% year over year, but below expectations. The memory supercycle is the core: supply of conventional DRAM and NAND is tight, HBM demand is strong, and Counterpoint raised its third-quarter DRAM price increase forecast from 5%-10% to 10%-20%. Douglas Research's Douglas Kim estimates Samsung's third-quarter HBM bit shipments rose nearly 50% quarter over quarter. Samsung will release full earnings on October 29.
TSMC will report September revenue today at 13:30, after August revenue of about NT$514.8 billion, up 53.3% year over year and up 10.1% month over month. Citi launched a 90-day catalyst watch on TSMC, expecting strong results. AMD CEO Lisa Su visited Korea for the second time in seven months, publicly confirming for the first time that SK Hynix will supply HBM4 for AMD AI accelerators, with MI455X carrying 432GB of HBM4 per unit, a 50% increase over the previous generation; she proposed seeking "3 to 5 years or even longer" cooperation with Samsung and SK Hynix. Samsung hopes to extend HBM supply into foundry services, but AMD remains cautious.
AI models and devices continued to advance. OpenAI officially launched GPT-6, using Sol for the paid version and Luna for the free version, with improved jailbreak defenses and high-risk request refusal rates; Anthropic released Claude Haiku 5.5, with average operating costs about 75% lower than Haiku 4.5. Microsoft released the Surface Laptop Ultra with Nvidia RTX Spark, starting at $2,599 and shipping on October 16, and launched the AI agent product Scout; Nvidia partnered with Microsoft to let AI agents run natively on Windows PCs. Nvidia also plans to invest an additional $1 billion in humanoid robotics company Figure.
In addition, the healthcare sector continued to attract attention. Barclays initiated coverage of medtech with an overall bullish view, and Christopher Pasquale named Stryker and Edwards Lifesciences as large-cap top picks, with price targets of $375 and $110 respectively; Abbott at $120, GE HealthCare at $85, and Intuitive Surgical at $485. He believes medtech valuations are at a decade low, with the discount to the S&P the largest since the peak of the tech bubble, as IHI has fallen nearly 19% over the past five years while the S&P has risen nearly 77%. The healthcare sector rose 1.06% on the day, leading U.S. stocks.
Goldman Sachs data showed Micron is expected to contribute 19% of S&P 500 third-quarter earnings growth, and Nvidia 15%, with the combined increment roughly equal to that of the other 490 constituents. Citadel's Scott Rubner said bluntly: "The stock market is not the economy, and it is increasingly obvious that the S&P 500 does not represent ordinary stocks either." Deutsche Bank's Henry Allen warned that bonds and equities are pricing "fundamentally different macro regimes," and such divergence is unlikely to persist.
Earnings season becomes the next key test, with JPMorgan, Citi, and Wells Fargo set to lead off next Tuesday. Crossmark's Bob Doll said rising rates have already knocked three notches off price-earnings ratios, but this has been masked by strong earnings; Nationwide's Mark Hackett said "the higher rates go, the less stocks are worth"; Truist's Keith Lerner said small caps are more sensitive to rates; Interactive Brokers' Steve Sosnick said 2.2% GDP growth does not necessarily lift all boats with the tide.A "liquidity vacuum" has emerged in the South Korean market. Samsung and SK Hynix's combined buyback of approximately $40 billion concluded ahead of schedule, having single-handedly absorbed over $25 billion in selling pressure over the past two months. On the first day after the buyback exited, the KOSPI fell 2% and lost the 7,000 level, foreign investors net sold $1.9 billion, Samsung fell 1.3%, and SK Hynix fell 2.8%. Goldman Sachs' Heather Oh warned that the combination of earnings previews, semiconductor ETF rebalancing, options expiration, and the buyback exit could trigger significant volatility in Samsung; SK Securities' Cho Junkee said volatility may rise after the buyback ends.
Specific project actions and stock price moves:
Micron Technology closed up 4.06%. D.A. Davidson's Gil Luria raised the target price from $2,100 to $3,000, citing memory supply shortages that will persist into 2027 and 2028. Memory-related names were mixed: SanDisk rose 1.92%, SK Hynix fell 2.36%, and Western Digital fell more than 1%.
Caterpillar plunged 5.77%, leading blue-chip decliners. The U.S. Federal Trade Commission and the Department of Agriculture jointly announced an investigation into the market practices of agricultural machinery manufacturers. The industrials sector fell 2.14% to lead declines, with Honeywell International down 2.24% and Sherwin-Williams down 1.95%.
TSMC fell 2.09%, and the Philadelphia Semiconductor Index fell 1.15%. The company is scheduled to report September revenue at 13:30 today; August revenue rose 53.3% year over year and 10.1% month over month, and Citi launched a 90-day catalyst watch. Intel rose 0.55%, ARM fell 2.71%, Qualcomm fell 2.16%, TSMC fell 2.10%, ASML fell 1.59%, and AMD fell 0.55%.
Broadcom closed up 0.19%. The company is seeking more than $50 billion in financing for custom AI chips for OpenAI, with Apollo and Blackstone among those in talks to participate, under the project code name Nexus. The Philadelphia Semiconductor Index fell 1.15%, and optical communications names broadly declined, with Coherent down 1.12%, Lumentum down 1.97%, and Corning down 3.39%.
SpaceX closed down 2.51%. The company is seeking $40 billion in financing to buy Nvidia chips, with Apollo expected to lead and Pimco participating; Dan Ives gave it an "Outperform" rating and a $225 target price. The space and satellite narrative remains hot, with Bezos saying Blue Origin may IPO in the coming years, and the FCC auction of "golden spectrum" potentially benefiting Amazon and SpaceX.
AMD closed down 0.55%. Lisa Su visited South Korea and confirmed SK Hynix's supply of HBM4, with MI455X carrying 432GB of HBM4, and is seeking 3 to 5 years or even longer cooperation with Samsung and SK Hynix; Samsung wants to extend into foundry, while AMD is cautious.
Apple closed up 0.91%. Dan Ives named Apple his top tech pick for 2027, with a $400 target price, expecting AI to drive device upgrades and services growth.
Microsoft closed up 0.09%. The company launched the Surface Laptop Ultra, starting at $2,599, shipping on October 16, and introduced the AI agent Scout; Nvidia and Microsoft are collaborating to let AI agents run natively on Windows PCs. Dan Ives' target price is $650.
Nvidia closed down 0.74%. Jensen Huang and Nadella unveiled previews of RTX Spark and DGX Station for Windows, and the company plans to invest an additional $1 billion in Figure; Dan Ives' target price is $300, calling it the "foundational computing platform of the AI economy."
Intel rose 0.55%. CEO Lip-Bu Tan said the company will continue working with Musk to advance the Terafab project, but Musk is also discussing cooperation with TSMC, hurting investor confidence.
Wolfspeed rose nearly 20% after hours. The U.S. Department of Defense plans to provide a $1.5 billion loan in exchange for warrants for up to 7.5% equity, supporting domestic production of its silicon carbide and power devices. Related silicon carbide and power semiconductor sectors received policy catalysts.
What to watch next:
October 8 (Thursday)
13:30 TSMC September revenue; Samsung's preliminary third-quarter results have already been released;
A-shares reopen, the PBOC injects 1.2 trillion yuan via outright reverse repos for a net injection of 200 billion yuan, and the Ministry of Finance tenders 150 billion yuan of 5-year special government bonds;
20:30 U.S. initial jobless claims for the week ended October 3;
The Nobel Prize in Literature is announced.
October 9 (Friday)
1:00 a.m.: U.S. 30-year Treasury auction, size $22 billion, for 30-year bonds maturing August 15, 2056, with a 5.125% coupon; afterward the Treasury will also buy back up to $6 billion of 20- to 30-year Treasuries. If demand is strong, long-end rates may pause; if weak, highly valued tech stocks will come under pressure again.