Brent topped $116 and stocks pulled back on fears of renewed U.S.-Iran hostilities after the midterm elections. For the week, small caps led with the Russell 2000 up 2% while the S&P 500 and Nasdaq slipped.
In addition to the negative correlation between AI stocks and yields this month (below chart is Philadelphia Semiconductor Index ($SOX) and 10-year yields)…
… we’ve seen weakness in the AI trade weigh on Fed rate hike expectations, on the idea that a softer AI complex means slower growth through both the buildout and equity channels, and so less need for hikes.
As noted in last night’s update, October is now a 93% chance of a hold, and December is less sure of a hike at 76% (from 88%). 2027 expectations dropped as well with now just 66 basis points of total hikes priced through December next year, down from 83 basis points Wednesday.
The 10-year Treasury yield ($TNX) has fallen below 5% for the first time in a month. Today’s 14 basis point drop is the largest since August 2025.
