Wall Street Morning Report: AI Bull Market Faces Interest Rate Judgment, Funds Shift to Defensive Assets, 30-Year Treasury Bonds Become Next Test

Every Monday to Friday morning, focusing on macroeconomics, U.S. stocks, AI, precious metals, and crude oil, using data to review the market and trends to seize opportunities, produced by PANews.

Long-Term Yields Hit Highest Level Since 2002, Oil Prices Fluctuate at High Levels, Gold and Silver Under Pressure

All three major U.S. stock indices closed lower, with the Dow Jones Industrial Average down 0.66%, the S&P 500 down 0.22%, and the Nasdaq Composite down 0.22%, ending a five-day winning streak. The Russell 2000 fell 1.31%, with small-cap stocks continuing to be under pressure, particularly interest rate-sensitive assets.

The pressure comes from the bond market, where the yield on the 10-year U.S. Treasury bond briefly reached 5.36%, the highest since 2002, closing at about 5.28%; the 30-year yield surged to 5.732%, also a high since May 2002. Concerns about French finances have reignited, with the France-Germany 10-year yield spread widening to about 140 basis points, and the yield on the UK 30-year bond briefly rising to 6.04%, a 28-year high. A global bond sell-off wave has crossed the Atlantic, directly raising discount rates.

The $39 billion 10-year Treasury auction became the only respite of the day, with a winning yield of 5.300%, the highest since November 2000, but the bid-to-cover ratio of 2.77 times set a new high since 2016, with overseas demand nearing record levels, and the non-dealer subscription ratio reaching a historical peak. After the auction, yields briefly retreated, and the decline in stock indices narrowed. Goldman Sachs' head of interest rate strategy, William Marshall, remains optimistic about yields falling to 4.75% by year-end; Barclays has raised its 10-year forecast for Q3 2027 to 5.25%, believing that under a resilient economy, there are almost no catalysts for falling below 5%. However, the bond market is not yet safe, as at 1 AM on October 9, the U.S. will auction $22 billion in 30-year Treasury bonds, which will be the next critical test. If demand is weak, long-term yields may rise again, putting further pressure on U.S. stocks.

The minutes from the Federal Reserve's September meeting leaned hawkish, with all 19 officials unanimously supporting a 25 basis point rate hike to 3.75%-4%, and most participants believed another increase before year-end might be appropriate. The minutes emphasized that inflation remains high, with geopolitical tensions pushing oil prices and a surge in AI investment exacerbating pressure. A survey by the New York Fed showed that one-year inflation expectations rose to 3.9%, the highest in over three years, with household financial expectations also deteriorating. The market currently prices in about 22% for a rate hike in October, with a high pricing for another increase before year-end.

U.S. media reports that the Pentagon has instructed Central Command to prepare for a large-scale military operation against Iran, with Trump weighing the timing, possibly acting before the November 3 midterm elections or even before the Israeli elections. Potential targets include energy, infrastructure, and nuclear facilities. Brent crude oil remains above $100 per barrel, while WTI fluctuates between $88 and $90. IMF President Kristalina Georgieva warned that even if Gulf conflicts end quickly, high oil prices could persist until 2027. Attacks on tankers have set weekly records, with the cost of supertankers heading to Asia soaring to $77 million, significantly raising supply chain costs.

The U.S. dollar index rose about 0.4% to around 102.27, with the euro nearing a 17-month low of 1.12. A strong dollar and high interest rates have jointly pressured precious metals: spot gold fell about 1.3%, hitting a low of $4066 during the day, the lowest since August 5; spot silver fell about 2.6%. Taking advantage of the drop in gold prices, the People's Bank of China has increased its gold holdings for the 23rd consecutive month, with reserves rising to 77.47 million ounces by the end of September. Zaner Metals strategist Peter Grant pointed out that the signal from the market is that interest rates will remain high for longer, supporting the dollar and U.S. Treasury yields, but official gold buying demand remains a medium-term support for gold.

Defensive Sectors Lead, AI and Semiconductors Continue to Absorb Capital

Defensive sectors such as healthcare, consumer staples, and utilities stood out, while industrials and materials lagged. Goldman Sachs' trading desk showed a clear bias towards selling that day, with long-term funds skewed towards selling by -25%, concentrated in macro products and tech stocks; the short-selling ratio for hedge funds rose to a near two-week high. High-quality asset portfolios surged, while shorted assets fell to a two-month low, as the market began to reward companies with healthy balance sheets.

The AI financing wave continues to absorb capital, with Broadcom seeking over $50 billion in financing for custom AI chips for OpenAI, with Apollo and Blackstone in talks; the project is internally referred to as "Nexus," with the first and second generation chips codenamed Jalapeño and Serrano. Oracle is negotiating chip financing with Apollo and Goldman Sachs; SpaceX is seeking about $40 billion to purchase Nvidia chips, with approximately $10 billion in bank loans and $30 billion in investment-grade bonds, with Apollo expected to lead and Pimco participating. Dan Ives of Yorkville Ives gives SpaceX an "outperform" rating with a target price of $225, stating that locking in Nvidia chips through bond issuance could enhance launches, Starlink, and the AI flywheel.

Samsung's operating profit for Q3 is approximately 107.4 trillion won, soaring 783% year-on-year, breaking the 100 trillion won mark for the first time in history, and setting a record for the fourth consecutive quarter; revenue is approximately 195 trillion won, a 127% year-on-year increase, but below expectations. The memory supercycle is key: traditional DRAM and NAND supply is tight, with strong demand for HBM, and Counterpoint has raised its Q3 DRAM price increase forecast from 5%-10% to 10%-20%. Douglas Research's Douglas Kim estimates that Samsung's HBM shipments in Q3 increased nearly 50% quarter-on-quarter. Samsung will release its full financial report on October 29.

TSMC will announce September revenue today at 13:30, with August revenue around 514.8 billion New Taiwan dollars, a 53.3% year-on-year increase and a 10.1% quarter-on-quarter increase. Citigroup has initiated a 90-day catalyst observation for TSMC, expecting strong performance. AMD CEO Lisa Su visits Korea for the second time in seven months, publicly confirming that SK Hynix will supply HBM4 for AMD's AI accelerators, with the MI455X featuring 432GB of HBM4, a 50% improvement over the previous generation; she proposed seeking a "3 to 5 years or even longer" partnership with Samsung and SK Hynix. Samsung hopes to extend HBM supply into wafer foundry, but AMD's attitude is cautious.

AI models and terminals continue to advance, with OpenAI officially launching GPT-6, with the paid version using Sol and the free version using Luna, increasing the jailbreak defenses and the rejection rate for high-risk requests; Anthropic released Claude Haiku 5.5, with average operating costs reduced by about 75% compared to Haiku 4.5. Microsoft launched the Surface Laptop Ultra equipped with Nvidia RTX Spark, starting at $2599, shipping on October 16, and introduced the AI agent product Scout; Nvidia and Microsoft collaborated to allow AI agents to run natively on Windows PCs. Nvidia also plans to add a $1 billion investment to humanoid robot company Figure.

Additionally, the medical field continues to receive attention, with Barclays initiating coverage on medical technology and maintaining an overall bullish outlook, with Christopher Pasquale listing Stryker and Edwards Lifesciences as top picks, with target prices of $375 and $110 respectively; Abbott's target is $120, GE Healthcare's is $85, and Intuitive Surgical's is $485. He believes that medical technology valuations are at a ten-year low, with a relative discount to the S&P reaching the largest since the peak of the tech bubble, with IHI down nearly 19% over the past five years, while the S&P has risen nearly 77%. The healthcare sector rose 1.06% that day, leading U.S. stocks.

Goldman Sachs data shows that Micron is expected to contribute 19% to S&P 500 earnings growth in Q3, while Nvidia contributes 15%, with the combined increase approximately equal to the total of the remaining 490 component stocks. Citadel's Scott Rubner bluntly stated, "The stock market is not the economy, and it is becoming increasingly clear that the S&P 500 does not represent ordinary stocks." Deutsche Bank's Henry Allen warned that bonds and stocks are pricing in "fundamentally different macro regimes," and this divergence is unlikely to persist.

Earnings season will be the next key test, with JPMorgan, Citigroup, and Wells Fargo set to report next Tuesday. Crossmark's Bob Doll stated that rising interest rates have caused price-to-earnings ratios to drop three tiers, but this has been masked by bright earnings; Nationwide's Mark Hackett stated, "The higher the interest rates, the less valuable stocks become"; Truist's Keith Lerner noted that small-cap stocks are more sensitive to interest rates; Interactive Brokers' Steve Sosnick stated that a 2.2% GDP growth rate does not necessarily lift all boats with the tide.

The Korean market is experiencing a "liquidity vacuum," with Samsung and SK Hynix completing about $40 billion in buybacks ahead of schedule, having absorbed over $25 billion in selling pressure alone over the past two months. On the first day after the buyback exit, the KOSPI fell 2% below 7000 points, with foreign capital net selling $1.9 billion, Samsung down 1.3%, and SK Hynix down 2.8%. Goldman Sachs' Heather Oh warned that earnings forecasts, semiconductor ETF rebalancing, options expiration, and the buyback exit could trigger significant volatility for Samsung; SK Securities' Cho Junkee stated that volatility may increase after the buyback ends.

Specific Project Actions and Stock Price Fluctuations:

• Micron Technology rose 4.06%, with D.A. Davidson's Gil Luria raising the target price from $210 to $300, citing that storage shortages will continue into 2027 and 2028. Storage concepts had mixed performance, with SanDisk up 1.92%, SK Hynix down 2.36%, and Western Digital down over 1%.

• Caterpillar plummeted 5.77%, leading blue chips lower. The U.S. Federal Trade Commission and the Department of Agriculture jointly announced an investigation into the market behavior of agricultural machinery manufacturers. The industrial sector fell 2.14%, leading the decline, with Honeywell International down 2.24% and Sherwin-Williams down 1.95%.

• TSMC fell 2.09%, and the Philadelphia Semiconductor Index fell 1.15%. The company will announce September revenue today at 13:30, with August revenue showing a year-on-year increase of 53.3% and a quarter-on-quarter increase of 10.1%; Citigroup has initiated a 90-day catalyst observation. Intel rose 0.55%, ARM fell 2.71%, Qualcomm fell 2.16%, TSMC fell 2.10%, ASML fell 1.59%, and AMD fell 0.55%.

• Broadcom rose 0.19%. The company is seeking over $50 billion in financing for custom AI chips for OpenAI, with Apollo and Blackstone in talks to participate, with the project code-named Nexus. The Philadelphia Semiconductor Index fell 1.15%, and the optical communication sector fell broadly, with Coherent down 1.12%, Lumentum down 1.97%, and Corning down 3.39%.

• SpaceX fell 2.51%, as the company seeks $40 billion in financing to purchase Nvidia chips, with Apollo expected to lead and Pimco participating; Dan Ives gives an "outperform" rating with a target price of $225. The aerospace and satellite narrative remains hot, with Bezos stating that Blue Origin may IPO in the coming years, and the FCC auctioning "golden spectrum" may benefit Amazon and SpaceX.

• AMD fell 0.55%, with Lisa Su visiting Korea, confirming that SK Hynix will supply HBM4, with the MI455X featuring 432GB of HBM4, seeking a 3 to 5 years or even longer partnership with Samsung and SK Hynix; Samsung hopes to extend foundry services, but AMD's attitude is cautious.

• Apple rose 0.91%, with Dan Ives listing Apple as a top tech stock for 2027, with a target price of $400, expecting AI to drive device upgrades and service growth.

• Microsoft rose 0.09%, as the company launched the Surface Laptop Ultra, starting at $2599, shipping on October 16, and introduced the AI agent Scout; Nvidia and Microsoft collaborated to allow AI agents to run natively on Windows PCs. Dan Ives set a target price of $650.

• Nvidia fell 0.74%, as Huang Renxun and Nadella released the RTX Spark and DGX Station for Windows preview version; the company plans to add a $1 billion investment to Figure, calling it the "AI economic foundational computing platform".

• Intel rose 0.55%, with CEO Pat Gelsinger stating that the company will continue to work with Musk to advance the Terafab project, but Musk is also discussing cooperation with TSMC, undermining investor confidence.

• Wolfspeed surged nearly 20% after hours, as the U.S. Department of Defense plans to provide a $1.5 billion loan in exchange for up to 7.5% equity warrants to support domestic production of silicon carbide and power devices. Related silicon carbide and power semiconductor sectors received policy catalysts.

Upcoming Focus:

October 8 (Thursday)

• 13:30 TSMC September revenue; Samsung's preliminary Q3 performance has been released;

• A-shares resume trading, with the central bank conducting a net injection of 200 billion yuan through a 1.2 trillion yuan reverse repurchase; the Ministry of Finance will auction 150 billion yuan in 5-year special treasury bonds;

• 20:30 U.S. initial jobless claims for the week ending October 3;

• Nobel Prize in Literature announcement.

October 9 (Friday)

• 1:00 AM: U.S. 30-year Treasury auction, size $22 billion, targeting 30-year Treasury bonds maturing on August 15, 2056, with a coupon rate of 5.125%; subsequently, the Treasury will also repurchase up to $6 billion in 20 to 30-year Treasury bonds. If demand is strong, long-term rates may pause; if weak, high-valued tech stocks will face further pressure.

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