Thursday's headline number looks like a relief rally. The Dow Jones Industrial Average closed up 556.80 points, or 1.08 percent, at 52,178.28 — its best session in weeks. Underneath it, the most crowded trade on Wall Street took another beating.
The S&P 500 added 25.17 points, or 0.33 percent, to 7,744.11, erasing an early decline. The Nasdaq Composite managed only 20.16 points, or 0.08 percent, to 26,713.03, finishing essentially flat after being down more than 1 percent in the first half hour. At 9:50 a.m. ET the Nasdaq sat at 26,409.80, off 283 points, while the S&P was down 0.42 percent.
That gap between the Dow and the Nasdaq is the whole story of the session.
Eight Sessions of Selling in Semiconductors
The Philadelphia Semiconductor Index was tracking toward its eighth consecutive decline. Across the prior seven sessions the chip index had fallen more than 14 percent — a drawdown worth roughly $2 trillion in market value if the losses held.
The intraday damage was broad. Advanced Micro Devices dropped 6.4 percent, Micron Technology fell 5 percent, Nvidia slid 3.3 percent and Taiwan Semiconductor lost 2 percent. CoreWeave, the heavily indebted data-center operator that has become the sector's stress indicator, fell as much as 8.5 percent after a 15 percent drop on Wednesday.
Some of it was retraced by the bell. Nvidia closed down 1.84 percent rather than 3.3, and CoreWeave actually finished up 5.94 percent after Nvidia chief executive Jensen Huang told Bloomberg that "CoreWeave's cost of capital is decreasing" — an unusually direct attempt to steady a customer's share price.
The concern driving the selling is not demand for chips. It is how the buildout gets paid for.
"Investors are increasingly questioning how much future growth is already priced into valuations, how expansion is being financed and when these investments will generate sufficient returns," said Charu Chanana, chief investment strategist at Saxo.
Ted Mortonson, a technology strategist at Baird, put it more bluntly: "I think the street is tiring of the Bank of Nvidia, the Bank of AMD and the Bank of Broadcom" — a reference to chipmakers increasingly financing the customers who buy their hardware.
Hot Inflation, Falling Yields
The counterintuitive part is that Thursday's rebound was funded by a bad inflation report. September producer prices rose 1.3 percent on the month and 6.3 percent over 12 months, the largest annual gain since 2022, with the core measure up 0.7 percent.
Yields fell anyway. The 10-year Treasury yield dropped as much as 14 basis points to around 5.05 percent, touching a three-week low near 5.07 percent intraday before settling around 5.09 percent. The 30-year retreated toward 5.43 percent and the two-year eased more than four basis points to 4.759 percent.
That is a flight to safety, not a vote of confidence in disinflation. Money leaving stretched technology positions went into bonds and into defensives: Nike rose about 5 percent, Walmart roughly 4 percent and Merck about 3 percent. Ericsson gained 7 percent and Penske Automotive 9 percent. Charles Schwab fell 4.5 percent.
With Treasuries paying near 5 percent, the opportunity cost of owning an unprofitable AI infrastructure story has rarely been higher. The Dow's 557 points were not optimism. They were the proceeds of a rotation.
Sources: Reuters, Yahoo Finance, CNBC, The Motley Fool, Saxo Bank, Baird, U.S. Bureau of Labor Statistics