U.S. economic data pushes bond yields to 2007 highs as tech stocks pull back

Article by: Tide Research

U.S. economic data beat expectations, yet Wall Street wasn’t pleased. The composite PMI for September rose to 58.4, the highest since July 2021, with business input prices accelerating as well. Expectations for rate hikes intensified, pushing the 10-year U.S. Treasury yield up nearly 14 basis points in a single day to 5.106%, the highest level since 2007. Oil prices rebounded amid U.S.-Iran tensions, and the recent gains in tech stocks began to unwind. Another shift came from AI—Muse’s impact has expanded beyond chip beneficiaries to industries potentially at risk, with Expedia falling over 7%.

The S&P 500 fell 0.75% to 7,706.03, the Nasdaq dropped 1.13% to 26,936.04, ending a two-day winning streak after recording consecutive all-time closing highs; the Dow Jones fell 0.68% to 51,511.59. The VIX rose to 15.18.

Several days ago, the strongest semiconductor stocks began to pull back, with the Philadelphia Semiconductor Index falling 1.19% to 12,538.33, ending its previous streak of consecutive gains.

Seven giants: three up, four down. Meta continued its strong momentum from Muse, rising about 1%; Microsoft and Tesla edged higher. Alphabet fell 3.8%, Amazon dropped 2.2%, NVIDIA declined approximately 1.5%, and Apple closed lower. The Nasdaq Golden China Index fell 1.34% to 5,768.42.

The bond market experienced the most dramatic movements. The 2-year U.S. Treasury yield rose 11 basis points to 4.891%, reaching a intraday high of 4.947%, the highest since May 2024; the 10-year yield rose to 5.106%, the highest since 2007 and the largest single-day increase since April 2025.

Oil prices rebounded. WTI crude rose 2.3% to $92.60 per barrel, while Brent crude increased 4.28% to $103.50 per barrel. Spot gold fell 1.64% to around $4,283, as a stronger dollar further pressured precious metals. Crypto assets followed the interest rate retreat: Bitcoin briefly dropped below $84,000 before returning to around that level; Ethereum fell below $2,700.

The first clue about last night's market pressure came from economic data.

The U.S. S&P Global Composite PMI flash reading for September rose to 58.4, up from 56.0 in August, marking the highest level since July 2021. New orders accelerated notably, and business input costs reached their highest level in nearly four years. The stronger economy increases the Fed’s room to continue tightening, with interest rate futures pricing in a nearly 70% chance of another rate hike in October, up from around 53% during the session.

Federal Reserve Governor Michael Barr also continued to take a hawkish stance, stating that inflation risks are rising while employment risks are diminishing, and further policy adjustments may still be necessary.

The bond market then saw a wave of selling, with weak demand for the U.S. Treasury’s $70 billion 5-year note auction, resulting in the highest yield since 2007. Interest rates, which were merely a macro backdrop, became the most direct trading variable of the day.

Muse's trading continues, but the focus of capital has shifted.

On Monday, Meta and CPUs rose first, followed by storage and optical communications; by last night, Wall Street began identifying companies that might lose their traffic entry points after the widespread adoption of agents.

Expedia fell over 7%, Airbnb dropped about 6%, and Muse can directly search for hotels, compare prices, plan itineraries, and complete bookings for users, presenting new competition to the core search functionality of traditional travel platforms.

Amazon fell 2.2%, following its earlier decision to block Muse from directly accessing its shopping platform. The tension on the platform is easy to understand: once agents decide what users buy, where they book, and through whom transactions are completed, the value of traffic entry points will be reallocated.

Meta still rose about 1% that day, with its weekly gain exceeding 12%. Muse has evolved from a popular app into a new trading theme, as the market now simultaneously seeks who can offer more computing power and who might first see their business diverted by it.

Fei Ban fell 2.03% last night, NVIDIA dropped about 1.5%, and the semiconductor stocks that surged earlier this week showed significant pullbacks.

This correction differs from last week’s sharp decline triggered by the AI safety controversy. Previously, the market feared restrictions on AI development itself; last night, the pressure stemmed more from a sudden spike in U.S. Treasury yields, reigniting valuation pressures on high-valuation sectors.

The AI industry itself shows no clear signs of weakening. Meta's Muse continues to rapidly gain users, and recent new demands and order leads have emerged in storage, CPUs, and optical communications.

Next, it may become harder for the entire AI supply chain to rise together. Whether applications can generate profits, whether hardware demand can be realized, and whether capital expenditures can yield returns will gradually widen the gap between companies. After the recent rapid rally, stock selection is becoming increasingly important.

Over the past two trading days, the decline in oil prices provided a brief reprieve for tech stocks. Last night, this factor reversed again.

Iranian President Pezeshkian stated at the United Nations General Assembly that Iran will not yield to U.S. pressure, further reducing the likelihood of a short-term agreement between the U.S. and Iran. Brent crude oil promptly rebounded above $100, making the energy sector one of the few sectors to rise in the S&P 500.

The simultaneous rise in oil prices and strong PMI data is unfavorable for the interest rate market. With demand remaining robust on one side and energy costs pushing up corporate expenses on the other, the Fed’s challenge in curbing inflation has intensified.

This was also one of the reasons gold declined last night. The simultaneous rise in the dollar and real interest rates exerted greater pressure on non-yielding assets than the partial safe-haven buying could offset.

U.S. initial jobless claims and August new home sales. Last night’s PMI data pushed up the probability of an October rate hike; if employment remains strong and housing data shows no significant cooling, U.S. Treasury yields may continue to pressure tech stocks.

Darden Restaurants reports pre-market; Costco reports after-market. Costco’s member spending, average transaction value, and profit margins provide insight into the latest conditions of U.S. middle- and upper-income consumers.

Tech stocks continue to focus on two directions: first, whether the 10-year U.S. Treasury yield can hold around 5.1%, and second, whether internal differentiation in AI trading will persist. Muse has moved from driving chip gains to targeting travel and consumption platforms; next, capital will seek new beneficiaries and potential losers.