Stock Market Week: Hot CPI, Chip Selloff and $108 Brent Oil

A record run meets a hot inflation report

Wall Street spent the past ten days trying to keep two ideas in its head at once. The first is that corporate earnings, driven by the AI data-center buildout, are still very strong. The second is that inflation, bond yields and oil prices are moving the wrong way. For most of last week the first idea held. On Wednesday, October 14, the second one took over.

Stocks entered this week on solid ground. In the five sessions ending October 9, the S&P 500 rose 1.2% to 7,811.54, the Dow added 0.9% and the Nasdaq gained 0.6%. Over the same stretch the small-cap Russell 2000 slipped 0.9%.17 That was the Nasdaq's fourth weekly gain in a row. The S&P 500 ended the week less than 8 points below the record close it set on Tuesday, October 6.13 The gains came even as the 10-year Treasury yield finished Friday at 5.24%.17 Yields on longer-dated Treasuries hit 24-year highs during the week.12

The mood turned on Wednesday. September's consumer price index rose 3.7% from a year earlier, against forecasts of 3.6% and up from 3.4% in August. Core inflation, which strips out food and energy, came in at 2.6% against an expected 2.5%.44 The S&P 500 fell 1.11% to 7,718.94 and the Nasdaq dropped 1.88% to 26,692.87.42 The Dow lost only 0.09%, while the Russell 2000 fell 1.93%.45 Investopedia linked the selloff directly to rising expectations that the Federal Reserve will raise rates at its meeting later this month.43 Bank of America added to the pressure. Its shares fell 4.8% after it missed earnings estimates.44 CNBC TV18 tied the miss to a $1.2 billion regulatory penalty and a slowdown in its Wall Street business.46

The breadth debate: rotation or concentration?

Analysts did not agree on what last week's rally said about the market underneath the headline numbers. One weekly review called it a rotation. On that reading, value and equal-weighted indexes beat the market, and technology was one of only two sectors to fall.15 A separate analysis reached the same conclusion. It noted that the equal-weight S&P 500 rose about 1.6% and ended a seven-week losing streak.18 Morgan Stanley's view, as reported by Investopedia, pointed the other way. It argued that the number of stocks driving the index higher had been shrinking, with tech strength hiding weakness elsewhere.13

Both views have some basis, but Wednesday's session supports the concentration argument. When chip stocks fell, there was no rotation strong enough to hold the index up. Information technology dropped 2.62% that day, the worst of any sector.49 According to TheStreet, roughly 73.6% of U.S. issues were lower by the afternoon.45 A market that was truly broadening would have absorbed that hit better.

Semiconductors: strong results, weak stock reactions

The week's biggest test for chip stocks came from the two companies at the center of advanced manufacturing. Previews described them as reporting at a moment when chip shares were under pressure despite strong AI demand. Higher bond yields, geopolitical risk and doubts about the scale of AI spending were all pushing investors to revisit valuations.2

ASML reported first, and its numbers were strong. Net sales hit a record €11.662 billion, up about 55% from a year earlier. Net profit was €4.96 billion, and gross margin of 57.5% beat the top of the company's guidance range.8 Profit also came in well above the LSEG consensus of €4.1 billion, and ASML's shares rose 2.6% in early European trading.42 That gain did not last. The U.S.-listed shares closed down 3.94% at $1,650, and Nvidia fell 3.07% the same day.49 Reports gave different explanations for the reversal. Investopedia described the results as mixed.43 Another account said ASML had warned it cannot keep up with demand.44 Supply limits at a company that makes equipment other chipmakers depend on can be read two ways: as proof that demand is strong, or as a ceiling on future growth. On Wednesday, investors chose the second reading.

TSMC reported on Thursday morning in Asia, and the pattern was similar. Third-quarter net income was NT$763.06 billion, up 68.7% from a year earlier and above the LSEG SmartEstimate of NT$746.3 billion. Gross margin was 66.4% and operating margin was 58.7%, above the top of the company's 56%–58% guidance range.4 Benzinga reported revenue of $46.72 billion, up 41.2%. That is lower than the roughly 51% growth figure reported elsewhere, because the 41.2% is measured in U.S. dollars while the higher figure is in New Taiwan dollars. The quarter extended TSMC's run of record profits to six quarters, but the ADR still traded 1.73% lower after hours at $422.55.9 Before the release, options pricing implied a move of about 4% by the end of the week. TSMC's first statement also left out fourth-quarter guidance.4 That means the full verdict depends on what management says about capital spending and 2027 demand.

Asian markets showed how sensitive these stocks have become. On Tuesday, South Korea's KOSPI fell as much as 6%, as investors worried about chip valuations ahead of earnings season.23 Our reading is that the AI trade has moved into a stage where beating estimates is expected, and stocks now move on guidance, capacity limits and the cost of money.

Oil: a risk premium driven by geopolitics

Crude oil is a big part of why money has become more expensive. On October 8, Brent rose 5% to $105.3 a barrel. The jump followed a report that the White House had asked the Pentagon for options to strike Iran before the midterm elections, and came as Hurricane Isaias forced Shell and Chevron to shut in Gulf of Mexico production.21 Part of that rally faded after President Trump said the U.S. would not attack Iran before the midterms, and Brent slipped back to around $102–103.27

The relief lasted only a few days. A Houthi drone attack on Riyadh's main airport over the weekend killed 12 people and wounded more than 300, according to one report.25 Another report put the death toll at 13.30 Trump announced a Russia-Ukraine "energy ceasefire" on Sunday, but Russian strikes on Ukrainian power plants followed within hours. Brent settled near $108 on Monday, its highest close in more than two weeks.25 ING strategists said traders were paying more attention to Middle East supply risks than to the ceasefire. They also noted that hurricane outages had shut in nearly 605,000 barrels a day, close to 30% of U.S. Gulf of Mexico output.22

The gap between the two main oil benchmarks shows where the worry is concentrated. The spread between Brent and WTI widened to nearly $12 a barrel, which suggests markets are most concerned about seaborne supply through the Strait of Hormuz and the Red Sea.26 Goldman Sachs raised its December Brent forecast to $90 from $85. It estimated the war-related risk premium at just over $20 a barrel.28 In other words, about a fifth of today's oil price reflects fear of disruption rather than actual shortages. That premium could disappear quickly if tensions ease, but it is feeding into inflation now. Analysts expected energy prices to keep inflation well above the Fed's 2% target.29

Bitcoin: lagging stocks

Crypto has not shared in the equity rally. Bitcoin fell to $80,308 on October 8. Spot bitcoin ETFs recorded more than $700 million in outflows that week, which weighed on hopes for a record-setting October.32 Another tally put the week's decline at 3.1% and net ETF outflows at $681.10 million, ending a three-week run of inflows.38 Bitcoin recovered to around $84,000 by Monday. Even so, the recovery was described as cautious while ETF redemptions continued.35

The CPI report reversed those gains. Bitcoin fell below $82,000 and Ether dropped under $2,450.40 Total crypto market value fell 4.5% in a day to $2.76 trillion. Futures liquidations were modest compared with the previous week, which suggests the decline came from spot selling rather than forced unwinding of leveraged bets.33 One analysis argued that rising Treasury yields are now hurting bitcoin more than stocks, because equities still have earnings expectations to support them.37 We agree. Bitcoin is trading like a long-duration asset that is sensitive to interest rates, not as a hedge against geopolitical risk.

The takeaway

The same chain of events runs through stocks, chips, oil and crypto. Geopolitical events push oil prices up, higher oil feeds inflation, and inflation lifts yields and bets on Fed rate hikes. Those higher yields then hit the most expensive assets first: chip stocks, small caps and bitcoin. Earnings remain the market's main support. FactSet projects 29.6% third-quarter earnings growth for the S&P 500.11 But this week showed that strong earnings alone did not lift chip stocks. Until oil's risk premium shrinks or the Fed signals it will hold rates steady, record earnings may not be enough to push indexes to new highs.