Dow steady as Nasdaq drops 1.24% on AI stock slump and oil surge

• AI semiconductor stocks, which had gained over 80% year-to-date, sold off sharply after reports highlighted OpenAI's large capital requirements and funding needs, with Nvidia, AMD, Oracle, and Broadcom all declining.
• Oil prices surged 3-4% on Middle East supply concerns (Brent +3.6%, WTI +3.19%), with US crude up more than 60% for the year, fueling inflation worries and raising expectations of a 70% probability for a December Fed rate hike.
• Treasury yields remained elevated near multi-year highs, with the 10-year yield at 5.22% and 30-year at 5.60%, as markets price in potential further rate increases despite Fed flexibility on timing.

Market Summary: AI Stocks Drag Nasdaq Lower Amid Oil Surge

Market Performance:

US markets closed mixed on Thursday, with major divergence across indexes. The Nasdaq Composite fell 1.24% to 27,197.10, while the S&P 500 dropped 0.46% to 7,765.70. The Dow Jones remained relatively flat, gaining 0.09% to 51,225.48.

AI Sector Under Pressure:

Technology and semiconductor stocks led declines following reports about OpenAI's revenue challenges. Nvidia, Oracle, and AMD experienced significant losses, with AI semiconductor stocks particularly hard hit despite posting 80%+ gains year-to-date. Concerns centered on the substantial capital requirements facing the AI industry. Broadcom faced additional pressure amid reports of arranging $50 billion in financing for OpenAI.

Palantir bucked the trend, rising after a Goldman Sachs upgrade citing strong demand for sovereign AI and customized applications.

Oil Market Surge:

Energy prices climbed sharply on Middle East tensions. Brent crude rose 3.6% while West Texas Intermediate gained 3.19%. US crude prices have surged over 60% year-to-date due to Iranian conflict-related supply concerns and hurricane-impacted US production. President Trump's statement ruling out Iran attacks before midterm elections helped oil retreat from session highs.

Treasury Yields and Fed Outlook:

The 10-year Treasury yield declined 7 basis points to 5.22%, while the 30-year fell 13 basis points to 5.60%. Markets expect the Fed to hold rates steady this month, with 70% probability of a December hike according to CME FedWatch.

Other Movers:

PepsiCo stock rose despite lowering full-year profit forecasts. Third-quarter earnings season begins next week, providing the next catalyst for market direction.