How higher bond yields are threatening the AI-fueled stock rally

Bond yields in the U.S. have risen this year, slowing down a stock market that has risen for years on the back of the AI build-out.

After consistently rising, with a few exceptions, from late March through mid-August, the S&P 500 is down nearly 90 points from Oct. 7.

The Nasdaq composite, meanwhile, is down more than 1,100 points over the last two weeks, hitting its lowest point in more than a month on Tuesday.

The S&P 500’s information technology sector, which includes AI-focused firms such as Microsoft and Nvidia, is also down by more than 500 points from two weeks ago.

“If those [tech] stocks don’t do well, it’s pretty hard for the stock market to do much of anything,” Steve Sosnick, chief strategist at Interactive Brokers, told The Hill.

Bond yields in the U.S. and globally have increased throughout the last seven months, as high oil prices amid the Iran war and mounting government deficits have compelled investors to flee the market.

The 10-year U.S. Treasury bond yield is down roughly 25 basis points from Oct. 7, when it reached a 24-year high of 5.365 percent during intraday trading.

But the note remains more than a full percentage point above where it stood at closing time on Feb. 27, the day before the U.S. and Israel launched strikes on Iran.

The 30-year Treasury bond yield has also declined over the last two weeks, falling from 5.733 percent during intraday trading on Oct. 8 to under 5.45 percent this week. 

The persistent demand for AI data centers and models, which has spurred a swell in borrowing by major tech firms, is partially contributing to the bond market sell-off, Sosnick argued. 

“There’s more demand for money because it’s not only governments demanding money,” he said. “It’s not only the normal amounts of corporations demanding money.”

“It’s that you have this hugely expensive AI build-out that demands money,” Sosnick noted, adding tech companies “used to spin off........

© The Hill