Cold shower in New York. The Nasdaq lost 1.9% on Wednesday October 14 and the S&P 500 1.1%, their worst session since July, after US inflation at 3.7% which puts a Fed rate hike back on the table from October 28. Technology dropped 3% in one day.
The stocks that have driven the artificial intelligence rally are those that are falling the lowest. CoreWeave fell 15.5%, Oracle fell 8.8% and AMD fell 5.7%. The question posed to the market can be summed up in one sentence: who will repay the trillions borrowed to build data centers if money becomes expensive again.
Key Points
The S&P 500 finished at 7,718.94 points, the fifth session of decline in six since its record.
The US 10-year briefly rose above 5.32% and the VIX jumped 10%.
The probability of a Fed hike on October 28 jumped from 22 to 35% in one day according to the CME.
Wall Street: the Nasdaq returns 511 points, tech loses 3%
The closing figures give the measure of the session. The S&P 500 fell 86.51 points to 7,718.94, the Nasdaq 511.51 points to 26,692.87 and the small-cap Russell 2000 1.9%. The Dow Jones, for its part, fared with -0.1% to 51,621.48 points, saved by health (+2.4%) and basic consumption (+2.2%). Money flowed into defensive sectors rather than out of the market.
Technology lost 3% and communications services 1.3%. According to the AP agency's session report, CoreWeave fell by 15.5%, Oracle by 8.8%, GE Vernova by 6.2%, AMD by 5.7%, Nvidia by 3.2% and Broadcom by 3.1%. The Philadelphia semiconductor index fell 4.3%, its sixth session of decline in a row. Volatility follows, with the VIX up 10% to 16.82.
Bank of America added its stone to the edifice, with -4.8% after quarterly results below expectations and a fine of 1.2 billion dollars from the Treasury for failures in the fight against money laundering. State Street lost 4.1%, and the banking earnings season continues all week.
Inflation at 3.7%: why the Fed is scaring AI stocks
The detonator fell at 2:30 p.m. Paris time. The September consumer price index shows 3.7% year-on-year, compared to 3.4% in August and 3.6% expected, with an underlying of 2.6%. Fuels, made more expensive by the war with Iran, explain most of the acceleration. Brent finished at $106. Jamie Cox of Harris Financial Group sums up the mood in one phrase: “Inflation is cooking with gas.”
Rates reacted first. The yield on the 10-year Treasury rose from less than 5.17% before publication to more than 5.32% during the session, the 30-year to 5.59%, and short maturities jumped even more. According to the CME, the probability of a further rate hike on October 28 rose to 35%, compared to 22% the day before. The Fed had already raised its rates in September, a first since 2023.
This is where AI comes into play. Data centers are financed on credit, and CoreWeave is the most visible example, with debt that has been weighing on its obligations for weeks. Every tenth of a point of additional efficiency increases the bill for an entire chain, from GPU rental companies to electricity suppliers like GE Vernova. Adam Schickling, senior economist at Vanguard, expects inflation to slow but warns that “patience will be necessary.” AI valuations have never been built on patience.
From New York to Seoul: the contagion has already started
The American session spread to Asia on Thursday morning, where the Kospi fell more than 7% at the open, led by SK Hynix and Samsung. Bitcoin followed the same path at the same time, below $81,000 at 4:40 a.m. Paris time, with more than a billion dollars in positions liquidated in 24 hours.
London gained 0.7% on Wednesday before the US close, and Shanghai lost 0.9%. Europe opens this Thursday at 9 a.m. with the Nasdaq at -1.9% and Asia in free fall in the rearview mirror.
