US stocks wavered on Friday morning as investors weighed the Federal Reserve’s first rate hike in three years alongside growing doubts about whether AI can ever be controlled. The tech-heavy Nasdaq Composite traded flat, while the S&P 500 fell 0.1%. The Dow Jones Industrial Average was down 0.3%.
The 10-year Treasury yield climbed 5 basis points to 5%, with traders increasing their wagers that the Fed will hike rates once more in October. It was the bond market’s move that drove the action, pushing stocks down because higher borrowing costs usually cut into company profits.
The Fed Hike Already Looks Behind
This week’s Federal Reserve increase of 25 basis points came as no surprise. Investors seemed to move on from it quickly, with American stocks climbing further after the Bank of Japan pushed its interest rate to the highest level in 31 years.
But analysts and top CEOs aren’t convinced one hike will be enough to bring down stubbornly high inflation. “It’s not clear to me we’ve slayed inflation,” JPMorgan Chase CEO Jamie Dimon told Yahoo Finance this week.
Oil Prices Ease Below $100
Oil prices pulled back below the $100 level on Friday, offering some relief as the war in Iran nears its seventh month. The energy shock stemming from disruptions in the Strait of Hormuz continues to baffle analysts and drive inflation higher, complicating the picture for global central banks.
Chip Stocks Snap Back
The semiconductor index was barely lower at the end of the week after recovering from a sharp decline earlier in the week. The turnaround came in response to Anthropic and OpenAI’s announcement calling for a slower pace of AI development.
What Is Actually Happening Here
A rise in bond yields drove the stock move, with traders placing their bets on a second Fed rate hike in October. That chain of cause and effect is straightforward.
- Traders push bond yields up on bets the Fed hikes again in October.
- Higher yields make borrowing more expensive, which hurts company profits.
- Investors sell stocks in response, pushing prices down.
- The Nasdaq holds steady, the S&P 500 falls slightly, and the Dow falls further.
Why One Hike May Not Be Enough
Dimon’s warning matters because he runs one of the world’s largest banks. His skepticism about inflation being beaten suggests the economy still has a long road ahead.
The War in Iran
For close to seven months now, Iran has been locked in a drawn-out struggle, and the ongoing troubles in the Strait of Hormuz keep pushing prices higher. The experts watching the situation still cannot explain it.
What Comes Next
Investors are wagering that the Federal Reserve will raise interest rates once more in October. At present, the decline in stocks is tied to doubt surrounding both rising prices and artificial intelligence.
A sense of unease is genuine, though the stock slide itself is slight. It follows the bond market instead of the Fed’s announced move.
Source material: “Stock market today: Dow, S&P 500, Nasdaq slip as bond yields rise,” Yahoo Finance.
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