What Happened Yesterday
The S&P 500 slipped 0.45%, which sounds calm until you look underneath. Chip stocks fell off a ledge, the companies that buy chips went up, and the bond market spent the day pricing a Fed hike the Fed hasn't voted on yet.
Close | Move | Mood | |
|---|---|---|---|
S&P 500 (SPY) | 760.88 | -0.45% | Mildly inconvenienced |
Nasdaq 100 (QQQ) | 709.18 | -0.80% | Chip on its shoulder |
Dow (DIA) | 524.49 | -0.25% | Doesn't own enough chips to care |
Russell 2000 (IWM) | 287.91 | -0.34% | Refreshing mortgage rates |
VIX | 17.10 | +7.95% | Pacing the kitchen |
Elsewhere: Chip stocks (SMH) -4.75%. Micron -5.25%, Broadcom -4.77%, AMD -4.40%, Nvidia -3.36%. Alphabet +3.22%, Meta +2.71%, Microsoft +1.97%. Oracle -3.65%, and its Friday earnings pop is now fully gone. Oil (USO) +1.14%. Energy stocks (XLE) -0.94%. Gold (GLD) -1.49%. The 10-year yield is 4.988%; the 2-year is 4.675%.
Three AI rivals agreed on something
Chip stocks took it personally
Anthropic CEO Dario Amodei published an essay saying the industry "must slow the pace at which we improve the capabilities of AI models." OpenAI CEO Sam Altman replied, "I agree with Dario." Elon Musk added, "Dario is right." Three tech bosses who usually can't agree on lunch agreed on this, which alone should have scared people.
It did. The chip fund (SMH) fell 4.75%, its worst day since July 29. It now sits 19% below its June 22 high, about 1.2% from the 20% drop Wall Street calls a bear market, which is the technical term for "down a lot and in no hurry to come back."
Now the twist. The customers went up. Alphabet rose 3.22%, Meta 2.71%, and Microsoft 1.97%, and those three write the checks that pay for all those chips. A slower race means smaller checks, and their shareholders read that as a raise. Amazon slipped 1.26%, so not every buyer got the memo. President Trump weighed in too, calling worries about AI dangers "a HOAX."
When the people buying the shovels say "maybe dig slower," the shovel store eats it, and the diggers keep their lunch money. The chip trade was priced for a race with no finish line. Monday, three of the runners asked where the finish line was.
The 2-year packed the car before
the Fed said "we're going"
The 2-year Treasury yield rose 4.7 basis points to 4.675%, its highest close since July 2024. A basis point is a hundredth of a percentage point, and the 2-year yield tracks where traders think the Fed is headed. It's up 27 basis points since last Tuesday. The Fed hasn't voted. The 2-year already has.
The 10-year briefly topped 5% during the day, the first time since October 2023, then closed at 4.988%. That's its second-highest close since July 2007, missing first place by less than a fifth of a basis point. The 10-year sets the tone for mortgage rates, so house hunters now check it like a bathroom scale.
Market odds of a quarter-point hike Wednesday run from 83% to about 90%, depending on whether you ask CME FedWatch (the futures market's rate scoreboard), Polymarket, or Kalshi. The Fed's target range is 3.50% to 3.75% today.
The bond market already raised rates on the Fed's behalf and left the paperwork on the desk. Wednesday's real question isn't whether Chair Warsh signs it. It's how many more the dot plot promises, and a 2-year well above a post-hike 4% ceiling isn't betting on "one and done."
Saudi Arabia closed the back door
Oil stocks still wouldn't answer it
Saudi Arabia shut its East-West pipeline, the route that lets Saudi crude skip the Strait of Hormuz. The Energy Ministry called it a precaution after attacks, and regional officials told the AP Monday it could be out for weeks. Over the weekend, the Iran-Gulf meeting in Oman about a temporary Hormuz shipping deal got postponed "in the interests of consensus," per Oman's foreign minister, with no new date. Tehran says Saudi Arabia asked for the delay.
Oil (USO) opened up 2.9% and closed up 1.14%. Energy stocks (XLE) opened up 1.25% and closed down 0.94%. That's the second time in three sessions oil rose and oil stocks fell. Diesel hit a record $6.23 a gallon per AAA, which makes a 150-gallon truck fill-up about $935.
The main detour around Hormuz is closed for repairs, the talks to reopen Hormuz got rescheduled to "later," and investors still won't pay up for drillers. They see $100 oil as a tax on everybody else, not a windfall for the oil patch. And every tax on everybody else ends up on one desk Wednesday afternoon: the Fed's.
What to Watch Today
Before dawn, stock futures were lower, and oil was climbing again.
The calendar, all times CT
All day: The Fed's two-day meeting starts. The decision lands tomorrow at 1:00 p.m. with new projections and the dot plot, and Chair Kevin Warsh takes questions at 1:30.
7:30 a.m. The New York Fed's Empire State manufacturing survey, expected around 15, down from 20.6.
Noon. The Treasury sells 20-year bonds. See below.
1:15 p.m. Senate procedural vote on the CLARITY Act, the crypto market rules bill. It needs 60 votes and only opens debate. It does not pass the bill.
Tomorrow, 7:30 a.m.: August retail sales from the Census Bureau, expected +0.4%, five and a half hours before the Fed speaks.
The one thing that could ruin everyone's day
The noon 20-year auction. The 10-year touched 5% Monday and couldn't hold it. If buyers show up to this sale demanding a lot more yield, that's how 5% stops being a touch and becomes a close, and every mortgage quote in America reprices before the Fed says a word. A strong sale buys everyone a quiet night. A weak one hands the Fed a louder room.
Three AI rivals asked for a speed limit, the chip makers paid the ticket, and the bond market raised rates a day before the Fed could. Wednesday, Warsh just has to show up and sign.
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