Technology Stocks Crushed; Bonds Soar

Good morning,

• The Dow (0.7%), NASDAQ (-4.5%), S&P 500 (-1.9%) and EAFE (+1.4%) were mixed for the week.  Taxable bonds and tax-free municipal bonds rose sharply, gaining 0.9% and 1.3%, respectively.
• The 10-year Treasury yield fell 0.16% to finish the week at 5.08%.
• Growth and technology stocks got pummeled, with fears of over-valued AI stocks and their increasing capital expenditures on data centers, etc.  As a result, many investors sold those stocks and bought Treasuries as a safe haven, driving bond prices up and corresponding yields lower.
• Debt levels of the “hyperscalers” (mostly the huge AI-related companies) are raising concerns among investors that these companies may not have sufficient future income to cover their recently-issued debt.  See the chart below showing recent debt issuance.

Hyperscaler Debt Issuance

Source: Morgan Stanley

• Inflation readings from September came in higher than economists’ and investors’ expectations and are noted below.  These values are due in large part to the increased fuel costs, and give way for the Fed to consider raising interest rates.
• The Consumer Price Index (CPI – the most commonly referenced inflation number) rose 3.7% in September, higher than the 3.4% in August.  Core CPI (excluding food and energy) rose 2.6%, up from 2.4% the prior month.
• The Producer Price Index (PPI) rose 6.3%, the largest gain since 2022, and well above the estimate of 5.5%.
• Earnings season began with large banks that exhibited very strong earnings.  The next few weeks will mark a majority of the S&P 500 companies reporting their earnings.

Have a great day and terrific week!