What Happened Tuesday and Wednesday
The data feed that runs this newsletter was offline for two days, which, in hindsight, was the calm part of the week. So this edition covers two sessions. Both were red.
Wed close | Tue | Wed | Mood | |
|---|---|---|---|---|
S&P 500 (SPY) | 762.40 | -0.55% | -0.46% | Finally noticed |
Nasdaq 100 (QQQ) | 716.31 | -0.08% | -0.29% | Held up by AI and denial |
Dow (DIA) | 524.07 | -1.13% | -0.75% | Worst of the four: -1.87% |
Russell 2000 (IWM) | 290.64 | -0.45% | -1.37% | Took Wednesday personally |
VIX | 16.46 | +8.19% | +4.71% | Awake, not screaming |
Elsewhere, across both days: Oil (USO) +5.64%. Brent oil fund (BNO) +5.72%. Energy stocks (XLE) +1.95%, best of the 11 sectors. Gold (GLD) -0.84%. Defense stocks (ITA) -2.73%. The 10-year yield is 4.844%, up 5.5bp. The 30-year 5.293%. Bitcoin -1.77% to 78,260.
The war stopped being background music
On Tuesday, US forces destroyed five Iranian oil tankers after Iran's Revolutionary Guard fired ballistic missiles at a US warship, according to US Central Command. Iran answered with ballistic missiles at a US base in Jordan, and Jordan says it shot down 18 of 20. By Wednesday morning, Brent, the global oil benchmark, had crossed $100 a barrel for the first time since July.
This time the tape reacted both days. The oil fund rose 2.87% Tuesday and 2.70% Wednesday. The S&P fell both days, the Dow lost 1.87% across the pair, and the VIX, Wall Street's fear gauge, climbed 13% to 16.46. For five straight editions we have said the market filed this war under rates, not fear: oil runs, stocks shrug. This week the shrug slipped.
But read the rest of the tape before you call it panic. Energy stocks rose 1.95%, about a third as far as crude, so investors are still not paying up for $100 oil as a permanent fixture. Gold, the classic fear trade, fell 0.84%. Defense stocks fell 2.73%. People who are actually frightened of a war didn’t dump gold and missile makers.
This still isn't fear; it's arithmetic. A $100 barrel is an inflation input, inflation is the Fed's problem, and the Fed is openly debating a hike. The market didn't flinch at the missiles. It flinched at the invoice.
Everyone showed up to the bond auction
Borrowing got pricier anyway.
On Wednesday, the Treasury sold $39 billion of 10-year notes at 4.834%, up from 4.683% at the last one. Buyers bid for 2.71 times what was on offer, and the sale "stopped through" by 1.5 basis points, meaning the government got a slightly better rate than traders expected. By bond-market standards, the customers lined up around the block.
Then the 10-year closed at 4.844%, its highest close since October 2023, on the same day Treasury's bigger long-bond buybacks were scheduled to start. Strong demand, a buyback program in its corner, and the government still paid more to borrow by dinner.
You pay for it too. The Mortgage Bankers Association's average 30-year rate rose to 6.85% from 6.79% last week. On a $400,000 loan, that is about $16 a month, $192 a year, for nothing but the weather in the Persian Gulf.
When buyers line up and borrowing still gets more expensive, the problem isn't demand for Treasuries. It's what investors expect inflation to do to the dollars they get paid back in. The auction was fine. The oil was not.
AI got a price tag, and the market liked the number
Meta rose 6.55% Wednesday to 653.69 on roughly double its usual volume after launching Muse, a personal AI agent that can shop online, book flights and run your calendar. There is a free tier, plus paid plans at $20 and $100 a month. After two years of investors asking what all that data-center spending buys, Meta answered with a subscription page.
AMD rose 5.90% Tuesday and 3.04% Wednesday, 9.11% across the two, after its finance chief told a Citi investor conference the total addressable market for AI chips, Wall Street for "every dollar anyone could possibly spend on this," could reach $2 trillion to $3 trillion by 2030.
That is why the Nasdaq 100 lost only 0.37% over two days while the Dow lost 1.87%. Not all of tech got the memo: Alphabet fell 2.28% Wednesday and Amazon 1.78%.
The AI trade quietly changed its question from "how much are you spending?" to "who is paying you?", and anyone with an answer got paid Wednesday. Twenty dollars a month is not a business yet. It is proof there is a cash register at the end of the hallway.
What to Watch Today
Producer prices already came in hot
The Producer Price Index from the Bureau of Labor Statistics landed at 7:30 a.m. and did the hawks a favor. PPI is what businesses pay before they decide what you pay, and it rose 0.4% in August and 5.4% from a year ago, above the 5.3% expected. Core, which strips out food and energy, rose 0.4% versus 0.3% expected. Energy costs at the producer level jumped 4.2% in a single month. And that was August, before this week's trip to $100.
The calendar, all times CT
12:00 p.m. 30-year bond auction. The long end gets its turn to see if the buyers come back.
After the close: Oracle (expected $1.40 a share) and Adobe ($4.86), Adobe's first report since naming Anil Chakravarthy as its next CEO.
Friday 7:30 a.m.: August CPI from BLS, expected 0.4% on the month and 3.4% for the year.
Next Wednesday, 1:00 p.m. The Fed's rate decision.
The one thing that could ruin everyone's day
Tomorrow's CPI. Fed Governor Christopher Waller named the August data as his own trigger: if the improvement holds, he leans toward holding rates; if it proves "fleeting," a hike may be appropriate. PPI just ran hot, oil is at $100, and CPI lands four days before the Fed votes, with officials in their pre-meeting quiet period and unable to talk anyone down. Run it hot, and nobody at the Fed can say a word until they say it with a rate decision.
The US sank five tankers, Brent hit $100, the bond auction went great, and borrowing got more expensive anyway. The only thing that rallied on purpose was an AI assistant that books your flights, which is handy, because at these prices you are not driving.
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