Nasdaq Worst Week Since June as Oil Hits $110 Before Fed Meeting

A rotation turns into a retreat

Ten days ago, Wall Street was setting records. By Friday, the Nasdaq Composite had logged its worst week since June. The tech-heavy index fell 2.14% on Friday to close at 26,140.03, and it lost more than 4% over the week. The S&P 500 slipped 1.09% to 7,659.44, and both indexes finished below their 50-day moving averages.1 The Dow Jones Industrial Average went the other way for the week, gaining about 0.7% as money moved out of technology.12 That left the blue-chip index with two weekly gains in a row, while the S&P 500 posted its fourth losing week out of the last six.6

The weekly figures differ a little depending on the outlet, but they tell the same story. Most reports put the Nasdaq's loss at about 4.5% and the S&P 500's at roughly 2%.6910 The Nasdaq and S&P 500 had closed at record highs only 10 days before Friday's selloff.10 Both are now down about 5% and 2% from those peaks.10

The headline numbers hide what was happening underneath. Through Thursday, about 73% of S&P 500 stocks were up for the week, even though the index itself was lower.2 More than half of the index's members had climbed back above their 200-day moving averages, compared with roughly 40% at the end of September.3 Consumer staples gained 5% for the week and utilities rose 2%.9 Optical-networking and hardware names took the heaviest losses: Ciena and Coherent each fell 26%, and Lumentum dropped 25%.9

My reading is that this was not a broad liquidation. Investors sold AI stocks heavily and bought almost everything else. The problem is that AI makes up so much of the index that the rotation still pushed the averages lower. By Friday it was also spreading: the VIX, Wall Street's main volatility gauge, rose about 21% and closed near 20.11

Record chip profits, falling chip stocks

The oddest part of the week was in semiconductors. TSMC reported third-quarter revenue of NT$1.494 trillion, or $46.72 billion, and net income of NT$763.06 billion. Both revenue and profit growth were well ahead of a year earlier, and the gross margin was 66.4%.35 The company forecast fourth-quarter revenue of $52.3 billion to $54.3 billion.35 Analysts had expected about $48.8 billion.36 Chief executive C.C. Wei said demand was extremely strong and showed no sign of slowing. TSMC also raised its full-year growth forecast to about 44%.33 Even so, its U.S. shares fell 2.28% on Friday.37

ASML's results told a similar story. Third-quarter net income came in at €4.96 billion, well above the €4.1 billion consensus, and the company raised the bottom of its full-year sales forecast to €44 billion–€45 billion.39 Customers are already talking about orders for 2029 and 2030.33 Memory chipmakers in Korea were hit hardest: Samsung Electronics fell 9.91% and SK hynix dropped 11.56% in a single session.33 The iShares Semiconductor ETF was heading toward a ninth straight loss. Its only previous nine-day losing streak ended in May 2006.2

Coverage differs on what is driving the selling. Forbes argues that the question has moved on from whether AI demand is real. Investors are now asking whether record margins will draw in so much new supply that profits eventually shrink. Micron's 87% gross margin is the clearest example of the kind of figure that tends to bring in competitors.31 CNN points instead to credit risk. It describes growing concern that higher borrowing costs will hurt the parts of the AI build-out that depend on debt. CoreWeave fell almost 12% on Friday, one day after Nvidia's Jensen Huang publicly backed the company.10 Investopedia adds worries about chipmaking competition from abroad.8

I think the debt explanation matters most in the short term. A capacity glut would take years to arrive, while bond yields are a problem right now. The 10-year Treasury yield was 5.10% going into Friday.4 Earlier in the month, yields reached their highest level since 2002.6 Semiconductors make up about one-fifth of the S&P 500's market value, so pressure on these stocks drags down the whole index.10

The Fed under Warsh: a hold that may not stay a hold

Monetary policy is the biggest factor ahead. The Federal Reserve raised rates by a quarter point to a range of 3.75%–4.00% at its September meeting, in a unanimous vote. It was the Fed's first increase since 2023.4750 Minutes from that meeting showed most officials expected another hike by year-end, without saying when.43 The next decision comes on October 28.41

That week's September consumer price report made the decision harder. Headline CPI rose 0.6% for the month and 3.7% from a year earlier. Core CPI, which excludes food and energy, rose 0.3% for the month and 2.6% for the year, above forecasts of 0.2% and 2.5%.51 Gasoline jumped 9.1% and accounted for about half of the monthly increase.51 The New York Times noted that "supercore" services inflation was hot for a second month in a row and has risen at an annualized rate of nearly 4.6% over three months.56 Producer prices climbed 1.3% in the month.54

Reports diverge sharply on what markets expect next. USA Today said that right after the CPI release, 52% of bets were on a quarter-point hike this month.60 By Friday morning, CNBC put the futures-implied chance of an October hike at only 15%.46 Warsh's comments in Bangkok, along with signals from his top deputies that they are comfortable waiting, seem to have pushed odds back down.46 New York Fed President John Williams has said there is "no need for urgency."44 Weak September jobs data also counts for a pause: payrolls rose by just 29,000.47

CNBC's analysis notes that Warsh has openly rejected traditional forward guidance, so the usual signals may not be reliable.46 I expect a hawkish hold, meaning rates stay put but the Fed keeps the door open to a December hike. Still, 15% looks too low given Warsh's description of the 2% target as "firm, fixed" and supercore inflation running near 4.6%. Fed officials entered their pre-meeting quiet period on Saturday, so investors will get no further hints before the decision.47

Global central banks all leaning tighter

The Fed is not alone. In September, the European Central Bank raised its deposit rate to 2.50% and the Bank of Japan lifted its policy rate to 1.25%. The Bank of England held at 3.75%, with three members voting for a hike.61 The ECB announces its next decision on October 29, and prediction markets give about a 90% chance it holds.68 ING expects the ECB to hike in December instead.62 ING also now forecasts Bank of England hikes in November and February, and it sees little chance the Bank of Japan moves again on October 30.62 Euro-area inflation rose to an estimated 3.8% in September.68 In short, energy costs are pushing every major central bank toward higher rates at once.

Oil: the inflation story's root cause

Energy prices drive much of the inflation problem. Brent crude rose 3.72% on Friday to settle at $109.86, its strongest close since May. West Texas Intermediate climbed back above $100 to $101.41.2426 WTI gained 10.4% for the week.26 The rally followed reports that at least nine ships were hit near the Strait of Hormuz, that missiles aimed at Saudi Arabia's Yanbu port were intercepted, and that Ukraine plans to resume strikes on Russian refineries.24 Eurasia Group raised its estimate of the chance of a wider Middle East escalation from 35% to 65%.24

Governments are trying to bring prices down. International Energy Agency members agreed to release their last 100 million barrels of strategic reserves, including 20 million barrels of diesel.22 The U.S. Department of Energy asked for bids to exchange up to 17 million barrels from the Strategic Petroleum Reserve.26 Washington has also considered easing sanctions on so-called shadow-fleet tankers.27 ING's analysts argue that removing the war premium from oil prices entirely would take some kind of agreement between the U.S. and Iran.22 Earlier in the week, Oilprice.com described Brent as holding steady around $105.21 Friday's jump suggests that balance has broken, and with it the hope that energy inflation would ease in time for October's policy decisions.

Bitcoin: stuck, not safe

Crypto has not offered investors a refuge. Bitcoin dropped below $80,000 on October 15 and then recovered to about $82,300 the next day.15 Over the weekend it was trading near $81,500.18 Bitcoin dipped after the hot CPI report raised bets on a Fed hike, rose when bonds rallied, and has since been held back by outflows from spot ETFs.17 It remains far below its all-time high of $126,200.18 Its moves this week tracked bond yields closely, so it behaved like a rate-sensitive risk asset rather than a hedge.

What to watch

The next two weeks bring the Fed decision on October 28, followed on October 29 by September PCE inflation, the first estimate of third-quarter GDP, and the ECB decision.47 The same forces moved every market this week: oil above $100, yields near 5%, and a Fed chair who will not signal his next step. AI stocks are carrying the most debt-sensitive valuations, which is why they fell hardest when those pressures built. Strong chip earnings did not stop the selling, and they are unlikely to turn the market around until oil and yields come down.