Nasdaq 100 Hits Record High as Chipmakers Rally; Fed Hawks Cap Gains

The Nasdaq 100 closed at a record high on Tuesday, gaining +0.82%, as a chipmaker and AI stock rally outweighed a -0.36% decline in the Dow Jones Industrial Average. The S&P 500 finished unchanged, slipping from a five-week high, while December E-mini S&P futures fell -0.02% and December E-mini Nasdaq futures rose +0.79%.

The split close reflected two opposing forces. Semiconductor and AI names surged, while falling crude oil eased inflation risks and lifted sentiment. WTI crude dropped more than -1% to a three-week low after Japan's Kyodo News Agency reported that Iran proposed to reopen the Strait of Hormuz within seven days if the US blockade of Iranian ports is lifted.

Stocks also drew support from anticipation of a summit later this week between Presidents Trump and Xi Jinping.

The rally stalled when bond yields rose after hawkish comments from Boston Fed President Susan Collins and Richmond Fed President Tom Barkin, who warned inflation pressures could remain elevated and suggested they may favor additional Fed tightening. The September Richmond Fed manufacturing survey compounded the concern, falling -6 to a seven-month low of -2, well below expectations of 2.

Collins said she saw an "increased likelihood" of scenarios in which inflation remains "notably above 2%." Barkin warned it could take time for inflationary shocks to wane and that elevated pressures risk becoming entrenched.

Markets are pricing a 53% chance of a +25 bp Fed rate hike at the October 27-28 FOMC meeting.

Oil and diplomacy

Oct WTI crude (CLV26) extended losses on signs diplomacy may end Middle East hostilities. A spokesman for Iran's Islamic Revolutionary Guard said that "if our national interests require us to negotiate alongside the war, we must negotiate." President Trump said US officials had a "very productive" meeting with Iranian representatives and that "they have another one scheduled in the very near future."

Rates

December 10-year T-notes (ZNZ6) closed down -1.5 ticks, with the 10-year yield up +1.4 bp to 4.965%. T-notes gave up early gains on the hawkish Fed commentary. Tuesday's $69 billion auction of 2-year T-notes saw decent demand, with a bid-to-cover ratio of 2.63, just above the 10-auction average of 2.62.

European yields finished higher. The 10-year German bund yield rebounded from a 1.5-week low of 3.422% to close up +0.5 bp at 3.463%. The 10-year UK gilt yield recovered from a two-week low of 5.166% to finish up +2.7 bp at 5.238%.

The Eurozone September consumer confidence index fell -1.0 to -16.5, weaker than expectations of -16.0. ECB Chief Economist Philip Lane said a new wave of high energy prices means Eurozone inflation will stay elevated longer than the ECB initially anticipated. Markets discount a 48% chance of a +25 bp ECB rate hike at the October 29 meeting.

Chipmakers lead, financials lag

The iShares Semiconductor ETF (SOXX) rose more than +1% to a five-week high. SanDisk (SNDK) closed up more than +7%. Micron (MU) and Seagate (STX) gained more than +4%. Western Digital (WDC) and ARM Holdings (ARM) rose more than +3%, while ASML, Lam Research (LRCX), KLA (KLAC), NXP (NXPI) and Qualcomm (QCOM) closed up more than +2%.

Financial stocks slid. Charles Schwab (SCHW) fell more than -6%. Raymond James (RJF), JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) and Northern Trust (NTRS) dropped more than -3%. Morgan Stanley (MS), American Express (AXP) and Mastercard (MA) closed down more than -2%.

Energy producers retreated with oil. Valero (VLO) fell more than -4%; APA Corp (APA) and Marathon Petroleum (MPC) lost more than -3%; Diamondback (FANG) dropped more than -2%; and Phillips 66 (PSX), Occidental (OXY), ConocoPhillips (COP) and Devon Energy (DVN) declined more than -1%.

Single-stock movers

Viking Therapeutics (VKTX) surged more than +36% after a study showed patients taking its VK2735 GLP-1 weight-loss drug maintained up to 97% of weight loss versus 61% for placebo. Vicor (VICR) jumped more than +20% after raising Q3 revenue growth guidance to over 20% q/q from 10%, citing royalties from a non-exclusive license to Vertical Power Delivery.

Shopify (SHOP) rose more than +7% after announcing it was "partnering deeply" with Meta Platforms' Muse AI agent. Amgen (AMGN) gained more than +4% to lead Dow gainers after its dazodalibep drug met its primary endpoint in a Phase 3 study in adults with Sjogren's disease. AutoZone (AZO) climbed more than +3% after reporting Q4 EPS of $56.05 versus a $54.03 consensus.

Royal Caribbean (RCL) fell more than -6% after the Financial Times reported it is nearing a deal to acquire a majority stake in Sandals Resorts International. Quest Diagnostics (DGX) dropped more than -3% and Labcorp (LH) more than -2% after CMS released new preliminary Medicare payment rates for lab services.

Overseas, the Euro Stoxx 50 rose +0.108% to a 1.5-week high and China's Shanghai Composite gained +0.067% to a two-week high. Japanese markets were closed for a national holiday.

With the Trump-Xi summit ahead and markets split between falling oil and hawkish Fed rhetoric, the 53%-priced October rate hike odds suggest Wednesday's trading will hinge on whether inflation hawks or crude-driven disinflation wins the narrative.