Global stock markets held steady on Tuesday following a rally driven by artificial intelligence trading, while energy prices continued to dominate market sentiment as oil kept retreating and investors closely monitored diplomatic efforts aimed at ending the US-Iran conflict. As of writing, Dow futures rose 0.41%, S&P 500 futures gained 0.10%, building on yesterday's surge in tech giants and chip stocks that pushed the S&P 500 to a one-month high. Nasdaq futures slipped 0.02%. Europe's STOXX 600 declined 0.2% after rising 1% in the prior session, with semiconductor stocks among the few gainers in the European market.
AI-related stock performance diverged following the frenzy sparked by Meta's new AI agent. Meta Platforms' recently launched AI agent received positive market feedback, driving related stocks higher across the board in the previous trading session. Alphabet climbed over 1% in pre-market trading, leading the "Magnificent Seven," while an ETF tracking chipmakers edged slightly lower. Meta Platforms' Muse AI assistant has gone viral within two weeks of its launch, sending the company's shares sharply higher on Monday and reigniting enthusiasm for the tech sector. Just a week earlier, pessimistic warnings from several AI executives had triggered a global selloff in AI-related stocks. Meta shares closed up more than 11% on Monday, the biggest single-day gain since April 2024, lifting multiple AI-linked stocks. Advanced Micro Devices surpassed a $1 trillion market cap, Intel jumped 12.2%, and Arm Holdings rose 17%.
Where to begin
This suggests that demand for high-cost AI tools remains robust and that the hundreds of billions of dollars in capital expenditure by major cloud providers is well supported, said Kathleen Brooks, research director at XTB. If Muse sees widespread adoption, it could further drive demand for other AI tools, potentially boosting a sector that has underperformed in recent months, she added. David Kruk, head of trading at Paris-based La Financiere de l'Echiquier, noted that ahead of the third-quarter earnings season, he does not expect anyone to aggressively short tech and AI stocks. He also noted there is some expectation that the US might find a way to lower oil prices before the midterm elections, making a modest market consolidation reasonable at this point.
The volatile sentiment following Monday's rally highlights how investor confidence in the AI trade remains vulnerable to macroeconomic risks. Although bond yields have pulled back this week, they remain near multi-year highs as traders continue to price in recent rate hikes and persistent fiscal deficit pressures. A news report dealt a blow to oil prices, with Brent crude initially rising 2% before giving back all gains and slipping below $98 per barrel. The reversal came after Kyodo News reported that Iran had proposed reopening the Strait of Hormuz within seven days if the US lifted its blockade. Meanwhile, Iranian officials signaled a possible willingness to pursue a negotiated solution. A spokesman for Iran's Islamic Revolutionary Guard Corps told state media that if national interests require negotiating while at war, then negotiations must happen.
Why the focus on oil and yields?
In the prior session, oil prices fell more than 3% and briefly dropped below $100 for the first time in two weeks on expectations of new US-Iran diplomatic contacts during this week's UN General Assembly. US President Donald Trump is scheduled to address the UN General Assembly in New York later Tuesday, with traders watching for potential new diplomatic engagement between Washington and Tehran, which could be a pivotal moment. The renewed decline in oil prices helps ease concerns that high energy costs could fuel inflation. US Treasury yields turned lower, with the 10-year yield falling 3 basis points to 4.92%. The US dollar also retreated.
Investors are also on alert for possible yen intervention. The dollar index, which measures the greenback against six major currencies, held near seven-week highs. The 10-year US Treasury yield edged up to 4.969%, not far from the 16-year high set in October 2023. The dollar posted its largest gain against the yen, rising 0.26% to around 157.7, near three-week highs. The yen lost some support as expectations for faster rate hikes by the Bank of Japan cooled. The BOJ raised rates to their highest level in 31 years last week, but investors were disappointed by two dissenting votes and a lack of clearer hawkish guidance, leaving the yen under pressure and heightening concerns about currency intervention. Matthew Ryan, head of market strategy at Ebury, said foreign exchange intervention is always a relatively straightforward but limited support measure, and without a stronger monetary policy response, Japanese authorities will find it difficult to truly curb yen selling.
Trade talks between major economies
Global investors are also watching trade communications between major economies. Officials recently held a new round of talks in New York, attempting to make progress on trade, investment, and technology issues. The market is particularly focused on how existing trade arrangements will be extended after they expire in November. Despite the generally positive tone of recent communications, a final agreement remains elusive. Jim Reid of Deutsche Bank noted that for markets, the key question remains how current trade arrangements will continue after November. While the tone of communications has been broadly constructive, the final outcome remains uncertain. Roman Ziruk, chief FX strategist at Ebury, said that with global geopolitical uncertainty rising, the importance of communication between major economies has rarely been more prominent.
Trump overtakes rates and oil as top risk for retail investors
US markets have been buffeted by volatility in recent weeks, driven by a string of catalysts: a 25-basis-point rate hike by the Federal Reserve, the US-Iran conflict pushing up oil prices, and a surge in long-term bond yields. Yet retail traders believe the biggest threat to their portfolios comes from Trump's policies. A Stocktwits survey asking investors to identify the biggest threat to their portfolios found that 41% of voters ranked Trump and political risk as the top choice. Interest rate risk came in second with 23% of the vote, 21% of respondents cited oil price volatility, and the remaining 14% viewed rising long-term US Treasury yields as the biggest risk.
Stocks in focus
Alibaba shares surged over 3% after CEO Eddie Wu announced at the Apsara Conference that Alibaba Cloud plans to operate data centers with total global power capacity exceeding 20 gigawatts by 2032. Wu also unveiled the Zhenwu V900 chip at the event. The US Centers for Medicare and Medicaid Services released a report showing that federal Medicare payment rates for laboratory testing services are 16% higher than those of commercial insurers. The federal agency said it will align most Medicare payment rates with private market levels. Following the announcement, shares of diagnostic service companies Quest Diagnostics and Labcorp Holdings both fell more than 5%. Power electronics company Vicor issued third-quarter guidance projecting sequential revenue growth of over 20%, up from prior guidance of nearly 10%. The stock jumped 9% on the news. Swiss sportswear brand On Holding presented new medium-term financial targets at its Investor Day: net sales of at least CHF 5.6 billion by 2029, maintaining gross margins of 65% over the same period, plans to repurchase up to $1 billion of Class A ordinary shares by December 2029, and reaffirmed its full-year 2026 outlook. The news pushed shares up more than 6%. GameStop CEO Ryan Cohen disclosed the purchase of 1.2 million shares of the company, sending the meme stock favorite up 3.5%.