Dow Gains, Nasdaq Slips as Chip Stocks Sink Before Bank Earnings

A Quiet Holiday Session That Still Moved Money

Wall Street started one of its busiest weeks of the fall with a split session on Monday. Blue chips edged higher, while technology stocks, led lower by memory chipmakers, pulled the Nasdaq down. The Dow Jones Industrial Average added 195.60 points, or 0.38%, to close at 51,850.55, its third straight gain. The S&P 500 slipped 0.06% to 7,807.24 and the Nasdaq Composite fell 0.44% to 27,245.90.37 Small caps did a little worse than the Nasdaq: the Russell 2000 lost 0.45%, and the VIX volatility gauge rose about 2.5%.35

The Treasury market was shut for Columbus Day, so stocks traded without one of the main forces behind recent price moves.3140 Treasury yields had been the story of the prior week. The 10-year yield briefly came close to 5.37%, its highest in more than 24 years, before ending the week near 5.24%.31 With no new bond pricing on Monday, oil, single-stock news and positioning for the week ahead set the tone.36

Reports on the size of the Dow's gain differ slightly. Investopedia put it at 0.3%.31 An Associated Press figure relayed by another outlet said 0.4%, or about 215 points, which looks like an intraday reading.36 The official close was 195.60 points.37 The direction is the same in every account: the 30-stock index rose while the tech-heavy averages fell.

Memory Chips Take the Hit Before a Big Week for Semiconductors

The semiconductor sell-off was Monday's main event. Micron fell 3.9% after investors weighed growing competition from China's CXMT, which reported progress on a new chip structure.37 South Korea's SK Hynix also dropped on the same worries about Chinese rivals.12 Roundhill's Memory ETF lost 4.3%, the iShares Semiconductor ETF lost 2.6%, and technology was the worst sector in the S&P 500. Optical and photonics names such as Lumentum, Ciena, Coherent and Corning were among the biggest losers.31 Energy was the best-performing sector, up about 1.5%, while tech fell roughly 0.9%.40

The timing makes the drop more significant. ASML reports before the U.S. open on Wednesday, Oct. 14, and TSMC follows on Thursday, Oct. 15.43 Analysts expect ASML to earn $12.14 per share, nearly double a year earlier, on revenue of about $13.16 billion.44 Options traders are pricing a move of about 6% in either direction after the report.49 ASML no longer publishes quarterly order figures, so what CEO Christophe Fouquet says about demand now carries more weight.47

TSMC is the more important test of the AI trade. Its monthly sales filings already show record third-quarter revenue of NT$1,494.2 billion, up 50.9% from a year earlier and above the top of its July guidance.43 Because the sales number is already public, investors will focus on gross margin, fourth-quarter guidance and spending plans. The company guided third-quarter gross margin to 65% to 67%, down from 67.7% in the second quarter, and the ramp-up of its 2nm process is expected to cut margins by 3 to 4 percentage points.46 Even after a 49.6% gain this year, TSMC trails the iShares Semiconductor ETF by more than 30 points, largely because of those margin worries.46 Its U.S. shares fell about 2% on Monday.47

How nervous is the sector? The semiconductor ETF fell 5.1% last week, while software stocks rose 3.9%.42 Some of that came from Thursday's AI sell-off, which followed an OpenAI revenue setback.37 TSMC's shares took their biggest one-day fall of the recent pullback on Oct. 8, after the OpenAI news.43 Taken together, the money is rotating out of hardware rather than leaving technology altogether. The Roundhill Magnificent Seven ETF actually rose 0.3% on Monday, helped by a 3.4% gain in Meta.31 If TSMC's margins come in at or above the top of guidance, the semiconductor sell-off will look like an overreaction. If they disappoint, memory and optical stocks are likely to keep absorbing the selling.

The Fed Question: A Hawkish Pause, Then December

The Federal Reserve is the backdrop to all of this. It raised its target range by a quarter point to 3.75%–4.00% on Sept. 16, its first hike since July 2023, and makes its next decision on Oct. 28.22 Minutes released Oct. 7 showed that most officials expect another increase "by year end," though they gave no timing.21 Sixteen of 18 participants projected at least one more hike this year.25

Markets now expect that hike to come later. The CME FedWatch tool showed an 80.5% chance of a hold as of Oct. 12.29 Kalshi and Polymarket priced an October hike at about 16% and a December hike at about 74%.26 The odds moved quickly. An October hike was favored at almost 75% on Sept. 29. Then softer inflation data, cautious comments from New York Fed President John Williams, and a September jobs report showing only 29,000 new jobs against forecasts of 90,000 pushed it to the edges.22 Fed Governor Christopher Waller said on Oct. 8 that the hikes "do not need to come at consecutive meetings."28 Axios read the Fed's recent comments as pointing to a limited cycle: one more hike in December and possibly another in early 2027, rather than an open-ended tightening campaign.28

Chair Kevin Warsh has avoided giving guidance, which makes the economic data more important.28 September consumer price figures come out Wednesday, and economists expect headline annual inflation to rise to 3.7% from 3.4% in August, mostly because of energy.15 The key number is core inflation. A core reading of 0.3% or more could bring back bets on an October hike, while about 0.2% would support a pause.22 Not everyone agrees on the trade-off. One economist cited by U.S. News called the weak labor market a reason to cut rates but said inflation is the more pressing problem.15 Citigroup is the outlier among major forecasters and expects no further hikes this year.22

Our reading is that a hawkish hold in October is the likely outcome. The bond market has already tightened financial conditions in a way that lets the Fed wait, and an energy-driven jump in headline inflation is less likely to change the decision than a hot core reading.

Oil: Geopolitics Overpowers a Ceasefire Announcement

Oil explains why energy stocks led and why inflation fears returned. Prices swung within the day. Early in the session, Brent fell about 1.5% to around $103 and WTI dropped to about $90.2. President Trump had said Russia would supply more than 300,000 metric tons of diesel and that Russia and Ukraine had agreed to an "energy ceasefire."20 That drop did not last. Brent settled up about 1.8% near $107, and WTI for November delivery gained about 2% to $93.74.1419

The reversal was driven by events on the ground. Ukrainian President Volodymyr Zelenskyy said he learned of the truce from social media and that Ukraine would keep striking Russia while Moscow kept hitting Ukraine's energy infrastructure.19 Russia struck Ukrainian power plants.12 In the Middle East, Houthi strikes on Riyadh's main airport killed 12 over the weekend, and Trump said the U.S. might join Saudi attacks on the Houthis, which would risk widening the war.12 Several tankers were attacked in the Strait of Hormuz and the Gulf of Oman.17 Shell, Chevron and BP also evacuated staff from Gulf of Mexico platforms after Hurricane Isaías.17 Goldman Sachs raised its December Brent forecast to $90 from $85, including a risk premium of more than $20.17

The lesson is that traders discounted the diplomatic announcement and paid for physical risk. With Brent at about $107 a week before Fed decision-makers see the CPI data, energy is now the main threat to the "hold" scenario. One analysis listed Brent above $105–$110 as a trigger that could bring back the case for an October hike.22

Bitcoin Stuck Below $84,000

Crypto did not pick up the stock market's mixed tone. It mostly reflected pressure from interest rates and the dollar. Bitcoin traded around $83,000 by the close, below overnight highs above $84,200, while the dollar index rose 0.4% to 102.60 and gold fell 0.6% to $4,192.31 CoinDesk showed it at about $82,287 by late evening, down roughly 1.6%.3 Spot bitcoin ETFs lost $681 million last week.6

Coverage disagreed on the cause of the early bounce. One report credited the morning dip in oil prices for bitcoin's move toward $84,000.6 Later, CoinDesk tied the slide below $83,000 to a stronger dollar and the rebound in crude.3 Both readings point the same way: bitcoin is trading as a high-risk macro asset tied to yields and oil, not as a hedge against them. It is about 27.5% lower than a year ago.1 Even with October hike odds falling, analysts said 10-year yields near two-decade highs are still limiting appetite for risk.6

What to Watch

Tuesday's bank results from JPMorgan, Goldman Sachs, Wells Fargo and Citigroup start the earnings season. Johnson & Johnson and UnitedHealth also report.31 Wednesday brings CPI and ASML, Thursday brings TSMC, and the bond market reopens with all that news to absorb. Goldman strategists have turned overweight on stocks for the next three months, arguing that valuations look less stretched after the pullback and that the profit outlook is still healthy.12 The broader rally is still thin. The five largest S&P 500 companies are now worth as much as the bottom 434 combined, a record.40 For the bull market, which turned four on Monday, this week's chip earnings and inflation data are a bigger test than Monday's small index moves suggest.35