Market Overview
US equities closed lower in a volatile session on Monday, primarily driven by a significant sell-off in chipmakers and AI-related stocks. The Nasdaq Composite fell -0.56% to 26,186.41, while the S&P 500 closed down -0.48% at 7,619.98. The Dow Jones Industrial Average also slipped, finishing -0.29% lower at 52,421.20. This decline occurred amidst a surge in the 10-year US Treasury yield, which briefly surpassed 5.00% for the first time since October 2023 before settling at 4.96%, down 1.40 basis points for the day.
Oil prices rose on geopolitical tensions, with Brent Crude up 1.47% to $106.15 and WTI Crude climbing 1.84% to $101.89. The Australian 10-year yield was reported at 5.33%. In the broader commodity market, Gold closed down -1.56% at $4,340.00, and iron ore was down -0.8% at $95.75 a tonne. The US Dollar Index rose 0.35% to 99.46, while the Australian Dollar declined -0.20% to 0.71 against the greenback. Bitcoin saw a gain of 2.47% to 78,732.94.
Looking ahead to the APAC session, Australian shares are set for a muted open, with ASX 200 futures tracking lower, following the cautious sentiment from the US session. The ASX 200 last closed down -0.89% at 8,741.20.
What Drove Markets
AI Industry and Chipmakers Sell-off
A significant factor behind the US equity decline was a broad sell-off in chipmakers and AI infrastructure companies. This followed calls from prominent AI industry figures, including Anthropic CEO Dario Amodei, OpenAI CEO Sam Altman, and xAI founder Elon Musk, for a slowdown in AI development citing safety risks. Amodei proposed a three-step plan to achieve this, including allowing third-party evaluators access to verify safety practices. OpenAI CEO Sam Altman also stated that an IPO this year would be “ill-advised.”
The sentiment led to sharp declines across the semiconductor sector, which had been major beneficiaries of the AI boom. Leading the declines were:
- Lam Research (LRCX) down -8.29% to $273.49
- ASML (ASML) down -7.25% to $1,575.15
- Marvell Technology (MRVL) down -7.32% to $218.82
- Intel (INTC) down -5.59% to $97.19
- Micron (MU) down -5.25% to $924.03
- Broadcom (AVGO) down -4.77% to $344.72
- Advanced Micro Devices (AMD) down -4.40% to $493.41
- NVIDIA (NVDA) down -3.36% to $210.96
The VanEck Semiconductor ETF (SMH) also fell -4.75% to $541.50. Other related infrastructure companies like Hewlett Packard (HPE) and Dell (DELL) also experienced declines, down -10.76% and -5.82% respectively.
Soaring Treasury Yields and Fed Expectations
The 10-year US Treasury yield’s brief climb above 5.00% for the first time since October 2023, coupled with rising oil prices and persistent inflation concerns, has firmed market expectations for a Federal Reserve rate hike. CME’s FedWatch tool indicates a roughly 92% likelihood of a Fed rate hike at its September policy meeting later this week. Yerbol Orynbayev, former World Bank governor of Kazakhstan, highlighted that “inflation cannot remain at its current heights, and the Fed must pull any lever in its arsenal to combat it.”
Oil Prices and Middle East Tensions
Oil prices initially surged due to geopolitical jitters in the Middle East, specifically following Saudi Arabia’s reported shuttering of a key pipeline that bypasses the Strait of Hormuz, raising concerns over shipping through the vital chokepoint. Prices later pared some gains after President Donald Trump’s comments suggested the US is “open to” the concept of a “step-by-step” agreement with Iran, with an Iranian media report also hinting at potential progress.
Other Market Commentary
Bank of America was a notable sore spot for financial stocks, with CEO Brian Moynihan stating that third-quarter investment banking fees are likely to fall by more than 10% from a year ago, and trading revenue will come in around flat. Raymond James warned that weakening technical signals could increase the risk of a stock market correction in the next one to three months. Wall Street strategist Ed Yardeni projects the S&P 500 to reach 8400 by the end of the year. President Donald Trump also criticized calls for an AI slowdown, stating that ‘WHOEVER WINS AI, WINS!’ and that the U.S. must maintain its lead over China, calling AI safety concerns a ‘HOAX.’ Separately, China’s Foreign Ministry Spokesperson Guo Jiakun opposed ‘fear-mongering, confrontation and vicious competition’ regarding AI, advocating for ‘open and inclusive development for good and for all.’