On the surface, the stock market told a familiar story in the third quarter. Rising share prices of behemoth tech companies continued to lift the S&P 500 to new heights, shrugging off the war with Iran, higher oil prices and upheaval in the government bond market. But underneath the surface, there were signs that the sharp rise in both oil prices and bond yields had an effect on the market. A majority of the stocks in the S&P 500 — 311 of them — fell in the third quarter. Utilities and real estate, two sectors sensitive to higher borrowing costs brought on by higher bond yields, were among those that slumped.
“We did see a few wobbles,” said Kristina Hooper, chief market strategist at Man Group. “The risk for the rest of the year is that we start to see more vulnerability in tech.” The S&P 500 ended the third quarter with a small gain of 2 percent, led higher by a 16.5 percent rise for the energy sector. Palantir rose 60 percent in the quarter, increasing its market valuation to $450 billion. Microsoft rose 38 percent, to a market valuation of nearly $4 trillion.
The stock moves reflect a broader trend: The supercharged growth of A.I. companies is powering the economy, bond yields and the stock market at the same time. The 10-year Treasury yield rose to 5.3 percent on the final day of the quarter, its highest level since 2002. Higher yields underpin higher borrowing costs, typically weighing on the stock market. The parts of the stock market more sensitive to interest rates did feel the impact. Utilities fell over 13 percent for the quarter. The Russell 2000 index of smaller companies fell 7.2 percent, ending five consecutive quarters of gains.
Analysts say that the rise in bond yields is in part fueled by the expansion of A.I. “Typically something breaks when rates go up so quickly,” said Ms. Hooper. There are already some signs of investor caution emerging around the dependence of the market, and the economy, on the A.I. revolution meeting expectations.
Source: New York Times Business · Summarized by HeadlinesBriefing