Morning in New York: Oil and Interest Rates Are Once Again Putting Pressure on High-Priced Tech Stocks

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

The main external risk ahead of the market open remains a new escalation between the U.S. and Iran. Brent is holding above $91 per barrel, WTI is around $87, and the yield on 10-year U.S. Treasuries is around 4.78%. Oil’s return to monthly highs, coupled with a sharp rise in agricultural futures prices, once again links geopolitics to inflation and interest rate risks: further increases in the cost of energy and other commodities critical to food prices could reinforce expectations of a more hawkish Fed and intensify pressure on the long end of the yield curve, which is significant for borrowing in the investment-grade segment. Among stocks, the highly valued growth segment and small-caps remain the most vulnerable; conversely, stabilization in oil and UST prices will allow the market to refocus on corporate earnings and macroeconomic data.

A key domestic catalyst will be the data on manufacturing and the labor market. The ISM Manufacturing PMI for August is expected to come in at 55.2 points, down from 55.6 the previous month; the JOLTS job openings figure for July is expected to be 7.313 million, down from 7.359 million; and the final S&P Global U.S. Manufacturing PMI is expected to be 53.4, down from 53.2. Within the ISM report, “Prices Paid” warrants special attention: the consensus estimate is 70.8. The most unfavorable combination for stocks would be a strong headline ISM reading coupled with a persistently high price component, as such a result would heighten the risk of further increases in Treasury yields. A moderate cooling of activity and the price component, without a sharp deterioration in the labor market, would be a more favorable scenario.

Federal Reserve Board member Michael Barr is also scheduled to speak today. Following the hawkish reassessment at the September meeting, the market will be particularly sensitive to assessments of inflation, the labor market, and financial conditions.

Before the market opens, Medtronic (MDT) and NIO (NIO) will report their results. After the market closes, Dell Technologies (DELL), Palo Alto Networks (PANW), Credo Technology (CRDO), MongoDB (MDB), and GitLab (GTLB) will report. We consider DELL and CRDO to be the most significant for the market narrative as indicators of demand for AI infrastructure, and PANW as a test of the sustainability of cybersecurity spending. MDB and GTLB are also of interest today in the context of the ongoing debate over whether AI is a threat or a new driver of monetization for software.

Futures on U.S. stock indices are falling. We assess the risk balance for the upcoming session as negative, with moderate volatility: a calm corporate backdrop has so far offset pressure from oil and Treasury yields, however, the Fed’s hawkish rhetoric is increasing the market’s sensitivity to deviations in macroeconomic data from expectations, so partial profit-taking appears to be a likely scenario. The nearest support level for the S&P 500 is around 7,620 points, with a more significant level around 7,600.

— Robinhood (HOOD) shares are up about 2%. The company announced the imminent launch of a new product, and Robinhood Banking’s assets under management have exceeded $4 billion. This news supports the view that the company’s ecosystem will continue to expand beyond traditional brokerage services and that it will increase the number of ways to monetize its customer base.

— NIO (NIO) reported deliveries of 35,836 vehicles in August (+14.5% year-over-year), though deliveries from its ONVO sub-brand fell 13.2% month-over-month to 8,810 vehicles. Performance remains mixed within the multi-brand model: total deliveries are growing year-over-year, while ONVO deliveries have declined for the second consecutive month. Today, before the U.S. market opens, NIO will also report its second-quarter results; management’s comments on margins, demand, and ONVO’s outlook will be key to assessing the business’s future performance and the reaction of the ADR.

— Charter Communications (CHTR) announced that CFO Jessica Fisher will step down on October 15 to pursue another professional opportunity, and that current Chief Accounting Officer Kevin Howard will serve as interim CFO. Charter emphasized that its previously provided financial guidance and financial policies remain unchanged.

— Anthropic has signed a $35 billion cloud deal with Lambda (backed by Nvidia), under which the Hut 8 (HUT) data center in Texas—with a capacity of ~350 MW and powered by Nvidia chips—will be utilized. The news is boosting Hut 8’s stock (+1.7% in premarket trading), accelerating the company’s repositioning from a mining firm to a full-fledged AI infrastructure operator.

Trading on August 31 ended mostly lower: the S&P 500 lost 0.33%, the Dow Jones fell 0.70%, and the Russell 2000 dropped 0.54%, while the Nasdaq-100 gained 0.08%. The sell-off was fairly broad-based: the number of declining stocks exceeded the number of advancing stocks by a factor of 1.85 on the NYSE and 1.55 on the Nasdaq; the equally weighted RSP fell 0.59% compared to −0.30% for the SPY. The energy sector led the way (XLE: +2.04%), IT remained in positive territory (XLK: +0.44%), while communications (XLC: −1.35%), utilities (XLU: −1.17%), and industrials (XLI: −1.13%) lagged behind.

The main market-wide factor was a combination of rising oil prices and rising long-term Treasury yields. October WTI rose 3.01% to $85.91 per barrel; the yield on 10-year US Treasuries rose 3 basis points to 4.75%, and the yield on 30-year Treasuries rose by 4 basis points to 5.25%, while the 2-year yield fell by 1 basis point to 4.34%. The rise in oil prices heightened inflation risks, while pressure on the long end of the yield curve pushed up the discount rate for stocks; this supported the energy sector while simultaneously weakening the backdrop for higher-valued assets. The resilience of the Nasdaq-100 indicates continued demand for big-tech stocks. Tesla (TSLA) shares rose 5.5% on optimism surrounding the launch of its robotaxi service in Austin. The official event is scheduled for this Thursday.

Corporate developments exacerbated sector-wide volatility. Amazon (AMZN) fell 2.5% following a lawsuit filed by the FTC and 22 states, in which the company is accused of covertly inflating the cost of advertising auctions; PG&E (PCG) lost 20.1% as Senate Bill 492 failed to deliver the comprehensive reform regarding liability for wildfires that investors had anticipated; Howmet Aerospace (HWM) fell 7.5% following reports that SpaceX plans to bring the production of turbine blades and guide vanes in-house. These developments added localized pressure on the consumer, utility, and industrial sectors to an already unfavorable macroeconomic backdrop.

This article was AI-translated and verified by a human editor