Tech Stock Rally Loses Steam in Afternoon Trading: Markets Wrap

(Bloomberg) — The rally in tech stocks took a breather as equities pulled back from record highs. AI optimism was countered by geopolitical agita as a US government shutdown extended for a third day. Treasuries and the dollar slumped.

The Nasdaq 100 fell 0.4%, while the S&P 500 briefly turned negative. The weakness emerged even as the broader market gauge has now gone 114 trading sessions without a 5% pullback.

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Oil climbed as President Donald Trump’s warned of stark consequences if Hamas doesn’t agree to his plan to end the war in Gaza, overshadowing an impending OPEC+ decision on crude supplies. During a White House briefing Press Secretary Karoline Leavitt reiterated threats to layoff government workers and pull funds from Democratic strongholds, like Portland, Oregon.

Traders are also contending with some signals of a weakening economy. Data from the Institute for Supply Management showed the US service sector stalled in September as business activity shrank for the first time since the pandemic and orders barely expanded.

The latest round of big-ticket artificial intelligence deals and partnerships initially drove stocks to fresh highs on Friday on news that Global Infrastructure Partners was in advanced talks to acquire Aligned Data Centers. The deal values the company, a major beneficiary of the AI spending boom, at about $40 billion. In Asia, Japan’s Hitachi Ltd. teamed up with OpenAI on energy and related infrastructure, while Fujitsu Ltd. expanded its collaboration with Nvidia Corp.

The climb to record after record has been fueling questions over how far the rally can run. Concerns are growing that valuations look overheated as spending has yet to translate into earnings.

“While it’s been very difficult to stand in front of this market, storm clouds are darkening, including the late-‘90s-like trends unfolding in tech/AI, a disconnect between Fed rhetoric and market expectations around easing,” writes Vital Knowledge’s Adam Crisafulli. Bears see investors as “very complacent about the shutdown, with most assuming it will be wrapped up in under two weeks, but there doesn’t seem to be substantive movement toward a compromise.”

Treasury options pricing suggests that the shutdown that began Wednesday will last at least 10 to as many as 29 days, according to interest-rate strategists at Morgan Stanley.

While the temporary data blackout during the shutdown threatens to obscure the full picture of the economy, swaps traders remain confident in another quarter-point cut in October. The benchmark 10-year, which helps set a range of borrowing costs in the US, rose 3 basis points to 4.11% while the dollar slid.

Federal Reserve officials disagree about how much further to reduce borrowing costs after lowering their benchmark rate by a quarter percentage point last month. Chicago Fed President Austan Goolsbee reiterated his view that officials should proceed carefully with interest-rate cuts while Fed Governor Stephen Miran, who advocated for larger cuts in September, said he’d amend his inflation view if housing costs unexpectedly jumped.

Warning Signs

Friday’s burst of new partnerships and potential deals came just a day after a share sale lifted OpenAI’s valuation to $500 billion. Equities have climbed to successive record highs this year, with AI optimism adding to bullish momentum from prospects of monetary policy easing and resilient earnings.

Among signs that the market is getting frothy: a sentiment gauge compiled by Barclays Plc has been sitting near a level that indicates exuberance. A similar Bloomberg Intelligence measure is back to a “manic” zone that’s preceded lukewarm returns in the past.

While investors are wagering that the billions pouring into the AI sector will translate into profits and extend gains in tech shares, benchmarks are also bumping up against technical levels that often signal a decline is imminent.

In commodities, gold was on track for a seventh weekly gain, fueled by central bank buying amid falling US interest rates and lingering inflation concerns. And despite all the hype around AI and the surge in chip stocks this year, gold miners have actually been the better bet.

What Bloomberg Strategists say….

“Stocks have pared gains after the latest ISM Services data signaled fading economic activity but seeing persistent inflationary pressures. That’s not a good combination for risk assets, which have been riding on optimism about Fed rate cuts.”

—Tatiana Darie, Macro Strategist, Markets Live

For the full analysis, click here.

Corporate News:

Applied Materials Inc. shares dropped 2.6% after a $600 million hit to its 2026 revenue. Boeing Co.’s 777X is slated to fly commercially for the first time in early 2027 instead of next year, people familiar with the matter said, a fresh setback to the US planemaker that sets the stage for potentially billions of dollars in accounting charges. Huawei Technologies Co. used advanced components from Asia’s largest technology firms in at least some of its leading Ascend AI processors, a research firm discovered during teardowns. Some of the main moves in markets:

Stocks

The S&P 500 was little changed as of 2:17 p.m. New York time The Nasdaq 100 fell 0.5% The Dow Jones Industrial Average rose 0.6% The MSCI World Index rose 0.2% The Russell 2000 Index rose 0.8% Currencies

The Bloomberg Dollar Spot Index was little changed The euro rose 0.2% to $1.1733 The British pound rose 0.2% to $1.3470 The Japanese yen fell 0.2% to 147.52 per dollar Cryptocurrencies

Bitcoin rose 1.2% to $122,178.3 Ether fell 0.2% to $4,486.66 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.11% Germany’s 10-year yield was little changed at 2.70% Britain’s 10-year yield declined two basis points to 4.69% Commodities

West Texas Intermediate crude rose 0.9% to $61.02 a barrel Spot gold rose 0.7% to $3,882.76 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Cecile Gutscher, Andre Janse van Vuuren, Levin Stamm and Alex Nicholson.

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