Written by: Chao Xiang Research

U.S. economic data exceeded expectations, but Wall Street was not happy. The September composite PMI rose to 58.4, the highest since July 2021, with corporate input prices also accelerating. The expectations for interest rate hikes consequently increased, with the 10-year U.S. Treasury yield jumping nearly 14 basis points in one day to 5.106%, the highest since 2007. Oil prices rebounded due to the U.S.-Iran situation, and the gains accumulated by tech stocks in the previous days started to unwind. Another change came from AI; the impact of Muse has expanded from benefiting chipmakers to potentially impacting industries, with Expedia falling over 7%.

U.S. Treasury yields soar, three major indices collectively close lower

The S&P 500 fell 0.75% to 7706.03 points, the Nasdaq fell 1.13% to 26936.04 points, ending a two-day gain that previously hit historic closing highs; the Dow fell 0.68% to 51511.59 points. The VIX rose to 15.18.

The strongest semiconductor stocks from a few days ago also began to pull back, with the Philadelphia Semiconductor Index down 1.19% to 12538.33 points, interrupting the previous upward trend.

The seven giants saw three gains and four declines. Meta continued its strength from Muse, rising about 1%, while Microsoft and Tesla rose slightly; Alphabet fell 3.8%, Amazon dropped 2.2%, Nvidia declined about 1.5%, and Apple closed lower. The Nasdaq Golden Dragon China Index fell 1.34% to 5768.42 points.

The bond market experienced the most drastic changes. The 2-year U.S. Treasury yield rose by 11 basis points to 4.891%, reaching a session high of 4.947%, the highest since May 2024; the 10-year yield rose to 5.106%, the highest since 2007, and also marked the largest single-day gain since April 2025.

Oil prices moved upwards again. WTI crude rose 2.3% to $92.60 per barrel, and Brent crude rose 4.28% to $103.50 per barrel. Spot gold dropped 1.64% to around $4283, as a stronger dollar further suppressed precious metals. Cryptocurrencies retreated along with interest rates; Bitcoin briefly fell below $84,000, subsequently returning to around $84,000; Ethereum fell below $2700.

PMI hits five-year high, October rate hike probability approaches seventy percent

Last night, the first clue suppressing the stock market came from economic data.

The U.S. September S&P Global Composite PMI preliminary value rose to 58.4, higher than August’s 56.0, the highest since July 2021. New orders significantly accelerated, and corporate input costs also reached nearly the highest level in four years. The stronger the economy, the more room the Federal Reserve has to tighten, leading the market pricing for another rate hike in October to rise from about 53% during the session to nearly seventy percent.

Federal Reserve Governor Michael Barr also continued to sound hawkish. He believes inflation risks are rising, while employment risks have weakened, suggesting that subsequent policies may still need adjustment.

The bond market then saw concentrated selling, with demand at the U.S. Treasury’s $70 billion 5-year bond auction also being weak, with issuance yields reaching the highest since 2007. Initially, interest rates were just a macro backdrop, but last night they became the most direct trading variable of the day.

Muse’s impact expands, travel stocks drop over 7%

The trading related to Muse continues, but the focus of funds has changed.

On Monday, Meta and CPUs rose first, followed by storage and optical communications, but by last night, Wall Street began to look for companies that might lose traffic entry points after the widespread adoption of intelligent agents.

Expedia fell over 7%, Airbnb dropped about 6%, as Muse can directly search for hotels, compare prices, plan itineraries, and complete bookings for users, posing new competition to traditional travel platforms' core search entry points.

Amazon fell 2.2%, as the company had previously blocked Muse from directly accessing its shopping platform. The tension on the platform is understandable; once intelligent agents decide what users should buy, where to book, and through whom to transact, the value of traffic entry points would be redistributed.

Meta still rose about 1% that day, and the cumulative increase for the week has exceeded 12%. Muse has transformed from a popular application into a new trading line, while the market is now also seeking who can sell more computing power and which businesses may be diverted first.

Chip stocks pull back, AI market enters second round of selection

The Philadelphia Semiconductor Index fell 2.03% last night, with Nvidia down about 1.5%, showing clear signs of a pullback after previous large gains in semiconductors.

This round of adjustments differs from last week's sharp drop due to AI safety controversies. Previously, the market was concerned about limitations on AI development itself; however, last night’s adjustments stemmed more from the sudden surge in U.S. Treasury yields, amplifying the valuation pressure on high-valuation sectors.

The AI industry itself does not show clear signs of weakening. Meta's Muse continues to rapidly acquire users, while storage, CPUs, and optical communications have also been seeing new demand and order leads recently.

Going forward, AI trades may find it harder for the entire industry chain to rise together. Whether applications can be profitable, whether there is hardware demand that can be realized, and whether capital expenditures can yield returns will gradually widen the gaps among companies. Following the rapid increase a few days ago, the importance of stock selection is rising.

Oil prices return above $100, inflation pressure resurfaces

In the first two trading days, the pullback in oil prices had provided tech stocks with a brief respite. Last night, this variable reversed.

Iranian President Raisi stated at the United Nations General Assembly that Iran would not yield to U.S. pressure, and the likelihood of a short-term agreement between the U.S. and Iran again decreased. Brent crude subsequently climbed back above $100, making the energy sector one of the few upward directions in the S&P 500.

The simultaneous rise in oil prices and strong PMI is not friendly for the interest rate market. On one hand, demand remains strong; on the other, energy is pushing corporate costs higher, making it even more difficult for the Federal Reserve to suppress inflation.

This is also one of the reasons why gold fell last night. The dollar and real interest rates rose simultaneously, leading to pressure on non-interest-bearing assets that outweighed some safe-haven buying.

Today's Focus

U.S. initial jobless claims and August new home sales. Last night, the PMI already raised the probability of an October rate hike; if employment remains strong and housing data does not show significant cooling, U.S. Treasury yields may continue to pressure tech stocks.

Darden Restaurants pre-market earnings report, Costco post-market earnings report. Costco's member spending, average transaction price, and profit margins can provide the latest status of American middle to high-income consumers.

Tech stocks continue to watch two directions. One is whether the 10-year U.S. Treasury can hold around 5.1%, and the other is whether AI trades will continue to differentiate internally. Muse has shifted from driving up chip prices to impacting travel and consumer platforms, and going forward, funds will continue to search for new beneficiaries and potentially affected companies.