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U.S. Troops Surge to the Middle East Ahead of Midterms, Yet Trump Says "No Attack Before the Election"
The three major indexes closed mixed, with the Dow supported by energy heavyweights and eking out a 0.10% gain against the trend, while the Nasdaq plunged 1.25%, its biggest one-day drop in nearly seven weeks; the S&P 500 fell 0.47%, and the Philadelphia Semiconductor Index tumbled more than 3%, becoming the core drag.
Trump made it clear on Thursday on Truth Social that he would not attack Iran before the November 3 midterm elections, and said the U.S. and Iran are engaged in "productive discussions." However, the Pentagon has already prepared a three-day short, high-intensity strike plan targeting Iran's missile and drone stockpiles, energy facilities, and the Revolutionary Guard command system. Three U.S. aircraft carriers will gather in the Middle East in the coming weeks, the first time since 2003.
Iranian Foreign Minister Araghchi responded that Iran has proposed a "seven-day plan" and will formally respond to the U.S. proposal in the coming days. But the market is highly skeptical. Oil prices rose more than 5% at one point during the session, with Brent crude closing at $104, and WTI gains at one point exceeding 4%. After Trump's post, oil prices only pulled back about 1%, and the market's sensitivity to the president's tweets is systematically fading. Again Capital partner John Kilduff said: "Trading this market right now is basically playing geopolitical roulette. Everyone I talk to is reducing trade size."
The U.S. Treasury Department imposed a new round of sanctions on Iran the same day, targeting 17 vessels transporting Iranian crude oil and petrochemical products. The U.S. estimates that about 20 million barrels of Iranian crude oil are still stranded on ships.
Two Consecutive U.S. Treasury Auctions Unexpectedly "Save the Day," Yields Retreat from 24-Year Highs
Two key auctions this week changed the market's assessment of demand for U.S. Treasuries. On October 8, the $39 billion 10-year Treasury auction drew a bid-to-cover ratio of 2.77 times, with primary dealers receiving only 2.5%; on October 9, the $22 billion 30-year Treasury auction cleared at a yield of 5.618%, with a bid-to-cover ratio of 2.54 times, above the average of 2.41 times for the previous six auctions, and indirect bidders received 72.3%.
The 30-year Treasury yield touched 5.73% during the session before falling back to about 5.6%, while the 10-year fell from around 5.35% to 5.23%. TD Securities rates strategist Molly Brooks believes: "Demand held up, and for investors wanting to wade into the long end, this is a positive signal." Treasury Secretary Bessent's new adviser David Zervos said current real yields are "very, very high" by historical standards and have room to fall after the energy shock fades.
CME data show the probability of keeping rates unchanged in October rose to 82.3%, while the probability of a cumulative 25 basis point hike by December remains above 60%. Governor Waller said further rate hikes may still be necessary, but there is no need for consecutive increases; St. Louis Fed President Musalem hinted that rates should continue to rise over the next six to nine months. Fed Chair Warsh will speak on October 16 at the IMF annual meeting in Bangkok, the last day of the blackout period before the policy meeting.
U.S. Fiscal Deficit and AI Financing Boom Exert a Double Squeeze, Global Bond Markets Under Pressure
The U.S. fiscal deficit for fiscal year 2026 soared to $1.993 trillion, up 12% year over year, the highest since 2021, with the deficit expected to exceed 6% of GDP. The biggest "black hole" in U.S. fiscal finances is currently interest expense, with net interest payments already exceeding $1.1 trillion, up 11% year over year, even surpassing defense and healthcare spending and accounting for more than one-fifth of all tax revenue. Due to a 16% decline in corporate income tax revenue, tariff revenue falling short of expectations, and tax cuts, U.S. public debt has exceeded total GDP. Economists criticize that in an environment of economic growth and low unemployment, U.S. fiscal consolidation is progressing slowly, and an annual deficit of about $2 trillion is unsustainable.
At the same time, the AI industry's "cash-burning" race is competing with the U.S. government for long-term funds. Tech giants such as Oracle, Broadcom, and SpaceX have already issued nearly $500 billion in new debt this year for AI infrastructure, with recent financing plans totaling more than $150 billion. Oracle is raising funds through special purpose vehicles; SpaceX is seeking about $10 billion in bank loans and $30 billion in bonds to buy Nvidia chips; Broadcom is raising tens of billions of dollars.
Pressure in credit markets has surged sharply, with five-year CDS spreads for Oracle, SpaceX, and Broadcom all hitting record highs. The market-implied probability of Oracle defaulting over the next five years exceeds 20%, while SpaceX is about 16%. Goldman Sachs strategists warn that AI borrowers' willingness to pay high interest rates may create a significant "crowding-out effect," with CCC-rated high-yield bond spreads already at the 99th percentile of the past year, and financing cost pressure spreading across the entire industry.
Japan, the "big financier" of the global bond market, is changing strategy. As the Japanese 10-year government bond yield rose above 3% to a 30-year high, Japanese investors are becoming more selective about overseas assets. Japanese investors hold about $145 billion in French government bonds, down 2.5% from the end of last year; in the first half of the year, they net sold about $28 billion in U.S. long-term Treasuries, the first half-year net sale since 2022.
OpenAI Revenue "Shrinks" by $20 Billion, Tech Stocks Dragged Down
Under multiple pressures, the AI industry narrative has reached a turning point. OpenAI's latest investor documents show annualized revenue of nearly $50 billion as of the end of September, far below the $70 billion figure previously circulating in the market. The difference stems from different accounting methods (OpenAI counts only direct revenue, while competitors include cloud channels), but the $20 billion expectation gap is enough to shake the core assumption of "unlimited AI demand." Almost all of the Nasdaq's decline came from tech and semiconductors, with cloud services, optical interconnect, and data center stocks under broad pressure.
Goldman Sachs' trading desk noted that Samsung and TSMC results falling short of high expectations, along with rumors of further bond financing by Oracle and Broadcom, jointly intensified doubts about the sustainability of capital expenditure. Matt Maley of Miller Tabak said investors are beginning to question how long AI spending on this scale can be sustained amid sharply rising borrowing costs. UBS Wealth Management maintained its judgment of structural opportunities, but flagged phased volatility risks in financing and execution.
Specific project actions and stock price moves:
Nvidia fell 2.94%. The company announced it will invest $1 billion worth of resources over the next five years to support U.S. "superintelligence" research and development, covering key areas such as quantum computing, healthcare, and energy security, and plans to invest in AI inference chip company d-Matrix to expand ecosystem compatibility. But OpenAI's revenue expectation gap dominated market sentiment.
Storage and AI chip-related stocks came under broad pressure: the Philadelphia Semiconductor Index fell 3.39%, AMD fell 3.90%, Intel fell 5.34%, Broadcom fell 4.35%, Marvell Technology fell 3.52%, Micron Technology fell 4.79%, and SanDisk fell 4.90%.
Oracle fell 5.48%, as OpenAI's revenue data hit the AI capital expenditure narrative, compounded by news that the company itself is financing chip purchases through off-balance-sheet SPVs, with its CDS spread closing at a record high of 261 basis points, implying a five-year default probability of more than 20%.
Data center and cloud service stocks fell broadly: Nebius dropped 7.35%, CoreWeave dropped 7.77%, Applied Optoelectronics (AAOI) fell 13.58%, and Coherent fell nearly 10%.
Palantir rose 2.40%, as tech analyst Dan Ives listed Palantir, Nvidia, Microsoft, Apple, and CrowdStrike as the five tech companies most worth watching in 2027 and gave them an "outperform" rating.
SpaceX closed down 4.19%. The company announced the acquisition of a nationwide low-band spectrum license portfolio and plans to further push Starlink Mobile into the traditional U.S. wireless communications market; at the same time, the FCC approved the application for the second-generation Starlink satellite constellation to launch 15,000 satellites.
Apple rose 1.11%. The company announced a smart home new product launch event on October 13, and according to reports plans to launch its first touchscreen MacBook Pro, a new iPad mini, and MacBook Pro and iMac models equipped with the M6 chip around October 27.
Google fell 0.63%. The company released the Gemini general work agent, expanding AI applications in enterprise workflows, code execution, and multimedia generation. Prediction markets' implied probability that Google will have the best AI model by the end of the year rose to 43%, slightly above Anthropic's 42%.
Microsoft fell 1.35%. The Trump administration froze some green card applications for Microsoft, Adobe, and large IT outsourcing firms, and launched investigations into nine top universities, further expanding its visa crackdown.Amazon fell 2.25% as the company launched a new tablet product line under the Alexa brand, phasing out the value-focused Fire series. The new products are priced from $230 to $550 and are scheduled to ship on October 14. Amazon also faces competition from Apple's new smart home products and Google's Gemini agent.
Tesla fell 0.74%. Musk had earlier accused some unnamed "oligarchs" of obstructing Starlink's deployment in India, and India's Ministry of Communications subsequently responded that claims about India's satellite communications regulatory framework being unfair were baseless.