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The S&P 500 is in a "hidden bear market," with market gains highly concentrated in top assets.
WTI closed up about 3%, approaching $98, mainly due to supply disruptions in the Gulf of Mexico and a sharp drop in inventories; Brent edged down to around $105.92, as the IEA accelerated the release of its remaining roughly 100 million barrels of reserves to offset the impact. Trump reiterated that he will not use nuclear weapons in Iran and is not inclined to deploy ground troops, but Middle East friction continues to spread — Houthi attacks on the presidential palace in Aden, Yemen, killed 5 and injured 16, and Saudi airports have been attacked multiple times this month.
U.S. stocks staged a dramatic reversal, with the three major U.S. equity indexes opening lower and closing higher, all finishing up. The Dow Jones Industrial Average rose 1.08%, the S&P 500 rose 0.33%, and the Nasdaq Composite rose 0.08%. The Nasdaq fell more than 1.4% at one point during the session, and the Philadelphia Semiconductor Index fell more than 4% at one point, as Jensen Huang's support for CoreWeave helped tech stocks rebound, but the broader market was mainly supported by consumer, healthcare, and value stocks.
The Kobeissi Letter pointed out that U.S. stocks are currently in a "hidden bear market" where bull and bear coexist. As of October 15, the S&P 500 was only about 2% below its all-time high, but 84% of its constituents had pulled back at least 10% from their record highs, with 59% down more than 20% and 17% down more than 50%. The proportion of individual stocks in real estate, materials, utilities, and consumer discretionary sectors that had retraced was as high as 97%, 96%, 94%, and 92%, respectively.
Since the low on March 30, the S&P 500 has risen about 23% cumulatively, adding about $14 trillion in market value, but the gains are highly concentrated, with only 10 stocks contributing about 70% of the advance. Among them, Nvidia contributed about 3 percentage points, while Micron, Apple, and Microsoft each contributed about 2 percentage points; AMD and Alphabet contributed about 8% and 7% of the gain, respectively, while the other 490 stocks together contributed only 30% of the advance.
The Kobeissi Letter analyzed that this concentration does not necessarily constitute an immediate negative, and if the energy crisis eases and interest rate pressure declines, the market's upward momentum is expected to broaden from a handful of tech giants; however, against the backdrop of the ongoing war in Iran, high energy prices, and the Fed turning to rate hikes, the market remains near record highs. In addition, the institution speculated that without the impact of the Iran war, the S&P 500 might have already broken above 9,000 points.
Inflation data has repeatedly blown out, U.S. Treasury yields unexpectedly fell back, and the Treasury's financing strategy has become the market focus.
The latest U.S. September inflation data came in comprehensively "hot," with price pressures spreading from energy to the production and services sectors. The data showed that September CPI rose 3.7% year over year, while PPI rose as high as 6.3% year over year, the highest in nearly four years. Gasoline prices in particular surged 34.2% year over year, directly draining households' wallets and causing real wages to shrink for six consecutive months.
Although U.S. manufacturing activity recorded its strongest increase in nearly five years, and initial jobless claims last week were only 199,000, showing economic resilience, this "overheating economy" has instead worsened the Fed's policy dilemma. Several Fed officials warned that soaring electricity, electronic component, and construction costs from AI data center construction could trigger persistent inflation that is difficult to eradicate. Cleveland Fed President Beth Hammack emphasized that if the public and businesses form the psychology that "high inflation will persist for a long time," the Fed may be forced to take more aggressive tightening measures.
Within the Fed, some consensus has formed on the rate hike path, namely that fighting inflation remains the top priority. New York Fed President John Williams made clear that another rate hike is possible this year, and Citibank has also revised its previous forecast, expecting the Fed to raise rates in December, with no hope of rate cuts in the first half of 2027.
The hotter-than-expected CPI, PPI, and retail sales data should originally have pushed Treasury yields higher, but on Thursday the bond market moved in the opposite direction. The 2-year yield briefly fell below 4.69% during the session, the lowest since September 18; the 10-year yield briefly touched 5.04%, the lowest since September 23; and the 30-year yield fell 9.6 basis points to 5.4275%.
The strength in the bond market is not because inflation risks have dissipated, but because it was driven by multiple factors: first, AI financing pressure prompted funds to shift from stocks to bonds for safety; second, traders covered previously established short bond positions. TD Securities strategist Molly Brooks pointed out that the market's acceptance of duration assets has increased, and AI-related growth concerns are gradually outweighing inflation trades.
Currently, the U.S. Treasury is facing severe financing challenges. Annual U.S. interest expenses have exceeded the $1 trillion mark for the first time, even surpassing the defense budget. Against the backdrop of high energy prices, expectations that the Fed will restart rate hikes, and a fiscal deficit of nearly $2 trillion, long-term financing costs remain elevated, triggering long-term concerns in the bond market about fiscal sustainability. The market is currently focused on the quarterly financing survey questionnaire the Treasury sent to primary dealers on October 16, as well as the quarterly financing announcement to be released on November 4.
Citibank expects the Treasury may cut or even suspend 20-year Treasury issuance, citing weak long-term institutional demand, and plans to reduce the size of each 20-year and 30-year Treasury auction by $3 billion. Morgan Stanley fixed income head Vishal Khanduja pointed out that the Treasury had already signaled concerns about excessively high long-term yields, and the upcoming financing announcement is crucial.
However, the Treasury's policy adjustment faces a dilemma: if it shifts to short-term Treasury bill financing, the government will face higher interest rate risk during a rate hike cycle; if it continues to intervene in long-term bond yields through tools such as buybacks, it may be seen as a "Treasury put," which could temporarily lower financing costs but may damage the predictability of Treasury issuance policy. The Treasury must improve transparency in the upcoming announcement to reassure its huge base of Treasury buyers and avoid market panic caused by policy reversals.
AI infrastructure has entered a "Darwinian moment," and the market is entering a credit stress test.
Goldman Sachs trading desk monitoring showed that yesterday institutional orders in U.S. stocks showed an overwhelming selling bias, with the technology sector's sell ratio as high as 70%, and the Philadelphia Semiconductor Index recording a rare "seven-day losing streak," with more than $2 trillion in chip sector market value wiped out over seven trading days.
The market is experiencing a "Darwinian moment" for AI infrastructure. Affected by worsening inflation and rising borrowing costs, data center projects piled up with debt by AI giants and computing upstarts are facing severe cash flow tests. Bonds related to multiple data center projects involving Microsoft, Meta, Nvidia, Oracle, and Blackstone all fell below par, with Project Excalibur bonds falling below 87 cents. At the same time, credit default swap spreads for tech giants such as Oracle, SoftBank, and Amazon all rose to historic highs.
The Bank for International Settlements warned that the AI industry's circular financing model — in which "chipmakers invest in cloud providers, and cloud providers borrow to buy chips" — is extremely fragile. Gartner analysis pointed out that by 2030, trillions of dollars in AI infrastructure assets are expected to face impairment risk, and as many as 80% of "neocloud service providers" may go bankrupt or cease to operate independently. Affected by this chilling effect, companies such as Blackstone-backed AirTrunk, Nvidia-backed Firmus, and SoftBank-backed SB Energy have all been forced to delay or withdraw IPO plans.
In addition, Anthropic, which is sprinting toward what could be the largest IPO in history and plans to invest more than $500 billion in infrastructure over the next decade, latest disclosed that its third-quarter revenue growth slowed sharply to about 45% from more than 140% in the second quarter, and model distillation revenue, which accounts for 5%-7% of total revenue, is expected to decline this quarter. Under pressure from OpenAI's price war and competition from Google, Meta, and Chinese open-source models, the New York City comptroller publicly urged Anthropic to suspend its IPO, and some potential investors have cut their valuation expectations from the $2 trillion privately discussed by investment banks to below $1.5 trillion. On the other side, OpenAI not only delayed its listing, but also faced a joint lawsuit from eight U.S. states for allegedly "aiding and abetting minors."
However, just as AI hardware and electrical equipment infrastructure sectors were being bloodied, Nvidia CEO Jensen Huang's forceful defense of CoreWeave in Sweden yesterday, combined with Wall Street bull and Wedbush analyst Dan Ives shouting that "the AI selloff is a money-giving buying opportunity," forcibly helped tech stocks stop the bleeding. At the same time, the massive amount of capital withdrawn from AI turned around and rushed into large pharmaceutical stocks with steady performance, daily consumer goods, gold mining stocks, enterprise software, and other themes. The State Street Healthcare ETF (XLV) surged to a record high of $177.19, rising 5.6% over the past five days. To cope with market volatility, the Chicago Board Options Exchange announced that starting next Monday it will extend options trading hours for popular targets including the "Magnificent Seven" tech giants, chip giants, as well as Alibaba and TSMC.
Specific project actions and stock price movements:CoreWeave closed up about 5.94%: after Jensen Huang's endorsement, it reversed from an early decline of about 9.5% to gains, as Huang said financing costs were falling and Nvidia would not need to backstop it. The five-year CDS hit 1,194.5 basis points intraday, implying a default probability of more than 60%, while the 2031 bond yield was 15.6%-16.2%. Related AI infrastructure names: Vicor fell 12%, Vertiv fell 6.1%, nVent fell 5.8%, Dell fell 6.9%, Quantum fell 9%, Applied Materials/Seagate fell more than 3%, Coherent fell more than 7%; the Philadelphia Semiconductor Index fell 0.88%, its seventh straight decline.
Nvidia fell 1.84%: Jensen Huang projected confidence in CoreWeave, but his remarks failed to fully ease market concerns about the AI compute financing model. Nvidia is both a major GPU supplier to and a shareholder of CoreWeave, and related risks could transmit back to Nvidia itself through customer financing, equipment procurement, and project construction timelines. Huang also said that if customers develop unsafe AI software, the company will communicate first and, if necessary, stop supplying them; he believes market concerns about both AI safety risks and an AI bubble exceed the actual situation. Nvidia also pledged $250 million over the next five years to UK AI safety research.
Google rose 0.45%: it announced progress in magic state cultivation on its Willow processor, reducing the error rate of the relevant quantum states by about 40x and achieving logical fidelity of 99.99%. The result is expected to reduce the resource overhead of fault-tolerant quantum computing, but still requires validation at a larger scale.
Meta fell 0.11%: it released the Muse Spark Open open-weight model, with 816 billion total parameters and 42 billion activated parameters, supporting a context window of about 1 million tokens, focused on coding, software engineering, and AI agent tasks. The model weights are available through multiple cloud platforms and Hugging Face, and are adapted to Apple's MLX toolchain; however, Meta made clear that this is not the company's most capable model, and that its strongest model, Muse Wonder, remains closed-source. In related sectors, Apple fell 0.28%, Microsoft rose 1.08%, Alphabet rose 0.45%, and Amazon rose 0.27%.
SpaceX fell 2.33%: Musk confirmed that Star Mind, a computer jointly designed by SpaceX and Nvidia, is expected to enter mass production in 2027. The project is aimed at low Earth orbit data centers and plans to use a combination of Nvidia Vera CPUs and Rubin GPUs, with each satellite's compute architecture equivalent to an NVL72 rack, containing 36 Vera CPUs and 72 Rubin GPUs; Nvidia says the Space-1 module's AI compute capability is about 25 times that of the previous-generation H100 GPU. The project plans to use solar power, radiative cooling, and Starlink inter-satellite laser links for data return.
TSMC fell 1.80%: third-quarter net profit rose 68.7% year over year, above the analyst average estimate, while revenue rose 50.9% year over year. The company lowered its gross margin guidance to 66.4%, slightly below the expected 66.5%, mainly due to the initial ramp of its 2nm process.
Micron Technology rose 1.87%: it fell more than 6% intraday before reversing on bargain buying at the lows, while memory stocks broadly declined: SanDisk fell 0.61%, and Western Digital fell more than 4% intraday before significantly narrowing its loss by the close.
Coca-Cola hit a record high: KFC chose Coca-Cola as its beverage partner for U.S. locations, ending about 40 years of partnership with PepsiCo. Coca-Cola products are expected to enter KFC's 3,718 U.S. restaurants by spring 2027, and the two sides did not disclose the financial terms of the deal. Related consumer stocks rose broadly: Nike gained more than 5%, leading the Dow, with Walmart and others also advancing.
Hims & Hers (HIMS) rose about 6%: HHS has submitted to the White House for review a temporary policy allowing compounding pharmacies to produce peptide drugs, which the market interpreted as a potential business positive. Pharmaceutical stocks rose broadly: Eli Lilly gained more than 3%, approaching a record high; AbbVie, Gilead, Amgen, and other large drugmakers also strengthened in tandem, with the healthcare sector becoming the preferred certainty premium amid the AI pullback.
Tesla closed down 1.29% and rose more than 3% in after-hours trading: the new-generation Roadster made its debut, completing a jump and landing with the help of thrusters in a demonstration, with Musk saying "the flying car is real," adding more material to the long-term narrative.