Stocks sagged toward session lows as traders weighed fresh energy-supply risks, a tougher tone from the Fed and nerves around the artificial-intelligence trade. Rate-sensitive corners felt the pressure as the 10-year yield pushed up to 5.3%. Even so, the Cboe Volatility Index sat near 15.55, suggesting day-to-day swings remain fairly contained despite the noise.
Crude climbed after reports indicated the White House had requested the Pentagon draw up possible strike plans against Iran that might be executed ahead of the midterm elections. A developing Hurricane Isaias in the Gulf added another layer of concern for energy supply.
According to Fed Governor Christopher Waller, additional rate hikes will likely be necessary to subdue inflation. He also noted policymakers have flexibility on timing and do not need to hike at consecutive meetings.
On the stock front, investors are focusing on artificial-intelligence regulation and on government outlays for healthcare and defense as the US midterm campaign enters its final month. A gauge of US economic policy uncertainty has notched one of its sharpest three-year increases recently, even as overall market volatility stays relatively muted.
Energy risk and central bank tone pull equities in the same direction surprisingly often. Market Briefs covers both free every morning.
AI is still the backbone of the earnings story. Deutsche Bank strategists expect third-quarter profit growth to hold at a historically high 34% pace year over year, with AI-driven demand supporting roughly 54% earnings growth for megacap tech names.
Citigroup strategists Richard Schlatter and David Chew anticipate more companies will beat this quarter's expectations. They project that 66% of Russell 1000 constituents will top forecasts, versus a bit over 60% in the second quarter, with technology likely delivering the most beats.
Overseas, results tied to AI have been a mixed bag. Samsung's record preliminary quarterly numbers did not satisfy the most optimistic forecasts, while TSMC delivered 51% sales growth. That split sets the stage for a US reporting season where AI spending and demand remain dominant themes.
Election anxiety is filtering through sectors, says Matt Miskin of Manulife John Hancock Investments. He points out that banks and industrials, which "typically do better under Republican policies," have softened, hinting the market may be "pricing in a bit more of a blue wave." He also flags stress on lenders as credit-card, auto loan and mortgage rates hover near 20-year highs. As he puts it, lenders can benefit as "higher yields can lead to better revenues, but they can also lead to a tipping point where consumers just can't pay these kinds of loans."
Corporate headlines were busy. Broadcom Inc. is weighing another big transaction, having initiated $60 billion in debt financing to back Anthropic PBC's AI expansion.
Retail was active too. Levi Strauss & Co. posted its slowest direct-to-consumer growth since late 2022, partly because of a marketing misstep, and at the same time lifted its full-year earnings guidance.
Shares of Chipotle Mexican Grill Inc. climbed 6% on a Financial Times report saying Starbucks Corp. had engaged advisers in recent months to explore a bid for Chipotle. Palantir Technologies advanced 2.5% after Goldman Sachs lifted its rating to Buy from Neutral, pointing to the stock's underperformance this year.
You are looking at a market juggling higher energy risk, a Fed still talking tough on inflation, and an earnings season where AI takes center stage. Policy uncertainty is rising even as volatility looks calm, which means headlines may sway sentiment more than prices. Keep an eye on how energy developments, Fed messaging and AI-driven results shape the next leg of earnings, because those forces are steering which sectors get rewarded this quarter.
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