Wall Street Morning Brief: AI cash-burn panic triggers "stocks down, bonds up," oil breaks $113, US Treasury yields post largest three-year drop and fall below 5%

U.S. stocks and bond markets swung sharply, with the 10-year Treasury yield plunging below 5%, French government bonds sold off, Brent crude surging 4% to a five-month high, AI cash-burn concerns triggering a tech stock rout, capital flooding into defensive sectors for safe haven, with market risks and opportunities coexisting.

Every Monday to Friday morning, we focus on macro, U.S. equities, AI, precious metals, and crude oil, using data to review the market and trends to seize the initiative, produced by PANews.

Middle East war, the European debt crisis, and AI cash-burn concerns detonated simultaneously, sending capital fleeing stocks in droves into bonds for safe haven. The three major U.S. equity indices diverged markedly: the Nasdaq plunged 2.60%, its biggest drop since June; the S&P 500 fell 1.21%, ending a three-day winning streak; only the Dow edged up 0.02% for a third straight gain.

The 10-year Treasury yield plunged 19.3 basis points in a single day to 4.952%, falling below 5% for the first time in a month and marking the largest one-day drop since March 2023; the rate-sensitive 2-year yield tumbled 18.8 basis points to 4.635%, while the 5-year and 30-year fell to 4.76% and 5.286%, respectively. In the options market, long-bond call options showed a premium for the first time in seven months, and a major player splashed out $7 million betting the 10-year yield would fall to 4.6% next month.

Behind this bond-market frenzy are a short squeeze and the fermentation of multiple risks. Mackenzie Investment strategists noted that tech stocks that surged this year are taking profits and rotating into Treasuries, triggering short covering in the $32 trillion bond market. Goldman Sachs strategists noted that tech giants' issuance is comparable in scale to Treasuries, and now doubts over AI spending have reduced corporate issuance expectations, directly relieving pressure on the bond market with an effect comparable to "quantitative easing." But DoubleLine's deputy CIO remains bearish and short long bonds, criticizing Treasury Secretary Bessent's verbal efforts to push down rates and noting that the issuance pressure from over $40 trillion in U.S. debt (with the 20-year auction yield at 5.469%, the highest since 1986) has not faded.

Europe's political and fiscal crises are also pushing funds toward Treasuries. Although French President Macron vowed to severely punish rioters, France's 10-year government bond yield still soared to 5.076% (briefly breaking 5.1%), exceeding U.S. Treasuries for the first time since 2013. The France-Germany spread widened to 175 basis points, the highest since the European debt crisis; France's 5-year CDS broke 100, and French bonds even became rarer than Italian debt by nearly 50 basis points.

Amid escalating geopolitical conflicts in multiple regions worldwide, oil and gas supply has become extremely tight, and international oil prices have climbed sharply. Brent crude surged 4% to close at $113.17, a five-month high (with spot premiums even exceeding $123), while WTI rose 2.39% to $99.47. Goldman Sachs warned that LNG supply through the strait could fall by 300 million cubic meters per day.

In the Middle East, Houthi missiles destroyed the top three floors of a building at Saudi Aramco's Dhahran headquarters, forcing emergency evacuation of headquarters staff; facilities at Yanbu port and Dammam airport were also attacked, causing multiple casualties. Meanwhile, Iran's Revolutionary Guard hit four oil tankers and three struck mines in the Persian Gulf, and further threatened to cut the undersea fiber-optic cables in the Strait of Hormuz and strike Gulf civilian facilities if the U.S. and Israel restart airstrikes as planned after the November 3 midterm elections, forcing the U.S. military to deploy a third carrier group and evacuate family members from the embassy in Saudi Arabia. Global risk management analysts noted that Iran is deliberately keeping oil prices high as a bargaining chip before the election; Trump admitted yesterday that "Iran is doing everything it can to push oil prices higher" and threatened further military action, while urgently invoking the Cold War-era Defense Production Act to provide financial incentives to support domestic U.S. refining and pipeline capacity.

Gold and silver, however, unexpectedly plunged. Spot gold tumbled 2.88% and broke below the $4,000 mark on Friday, erasing all of summer's gains; silver plunged 5.87% to $54.42. Independent analyst Jesse Colombo noted this stemmed from the tech-stock crash triggering cross-market liquidation for cash (and concerns over Fed's Warsh turning hawkish), while he suspects Japan conducted currency intervention to suppress the dollar; $3,900-4,000 will be gold's lifeline.

Last night U.S. equities experienced a brutal reckoning against AI business models, with market concerns escalating from "danger" to "crisis." The AI investment boom that had pushed up Treasury yields is now backfiring through the bond market amid doubts over returns and massive issuance pressure; semiconductors, memory chips, and optical communications bore the brunt, while defensive sectors such as consumer staples, healthcare, and utilities bucked the trend, and the equal-weighted S&P 500 posted its best single-day outperformance since July 2024.

CFRA and FBB Capital noted that tech stocks, accounting for 40% of S&P market cap, are triggering massive selling panic, with capital rotating sharply from recent AI winners into defensive assets; Bloomberg strategists said that as tech giants and startups compete simultaneously for massive capital, free cash flow has become the number-one metric determining the life or death of tech stocks.

Wall Street's debate over the AI bubble has reached a fever pitch. TS Lombard strategist Dario Perkins warned that AI companies need to achieve $2.5 trillion to $3 trillion in annual revenue by 2030 (14 times current levels) to support the investment, yet current revenue is mostly internal circulation, and hidden liabilities across the industry total $1.5 trillion to $2 trillion; once the bubble bursts, it will trigger nearly $200 billion in credit losses and wipe out $20 trillion in U.S. equity market value (the S&P could fall 30%), consistent with Citadel's Ken Griffin's bubble thesis.

Bulls, however, remain steadfast: OpenAI is sprinting toward a $30 billion funding round at a $1.25 trillion valuation, led by Abu Dhabi and Coatue; Blackstone President Jon Gray countered that AI demand is growing "parabolically" and is by no means a 1990s telecom bubble; Pershing Square's Bill Ackman also proclaimed that if war and inflation cool, "2027 will be stunning for U.S. stocks," and remains firmly bullish on Netflix (up over 3% Thursday), Meta, and Fannie Mae and Freddie Mac, which "could rise tenfold."

Meta fell 6.98%: despite beating expectations in Q3 and Ackman's support, the company raised its multi-year compute and leasing expenditure commitments to a staggering $825 billion, Q3 free cash flow turned negative (-$2.12 billion), and it plans to issue new shares to raise funds, sending its 5-year CDS soaring to 120 basis points, a record high. This directly dragged down the neocloud and power infrastructure sectors: CoreWeave plunged 10.06% (bond yields broke 15%), and power equipment giant GE Vernova tumbled 10.64%.

Nvidia fell 4.40%: despite launching the AI operations platform Minerva, CEO Jensen Huang admitted that "capital shortages are constraining neocloud industry growth," and Wells Fargo said this triggered fears over credit absorption capacity.

Chip and optical communications sectors collapsed across the board: the Philadelphia Semiconductor Index plunged 6.72%, MTSI fell 15.87%, Entegris fell 13.12%, Lam Research fell 11.76% on weak guidance, KLA fell 9.55%, Applied Materials fell 8.16%, AMD fell 8.10%, Intel fell 8.04% despite receiving an FCC robotics equipment waiver, ASML fell 6.93%, TSMC fell 4.52%, Broadcom fell 4.31%; in optical communications, Coherent plunged 12.51%, AAOI fell 11.96%, Lumentum fell 11.54%, and Marvell fell 8.70%.

SpaceX fell 9.14%: despite partnering with Nvidia to launch the Super Intelligence Partner Network to accelerate Grok commercialization and negotiating to lease 80,000 base stations to build the fourth-largest U.S. carrier (construction costs could exceed $80 billion), it faced a lockup expiration of 1.3 billion shares on Thursday, wiping out $198 billion in market value. Traditional carriers facing competitive threats—AT&T, Verizon, and T-Mobile—all fell 4.2% to 5% after hours.

SanDisk fell 8.51% and Micron fell 6.26%: profit-taking after surging severalfold this year; combined with South Korean regulators' strict scrutiny of duplicate listings forcing SK Hynix to abandon a U.S. IPO for its subsidiary Solidigm, the memory sector sold off sharply, with SK Hynix down 8.07%, Seagate down 7.86%, and Western Digital down 6.43%.

Moderna fell 17.57%, plunging 26% intraday: Phase 3 data for its melanoma vaccine developed with Merck leaked early, showing recurrence and distant metastasis risk reduced by 42% and 38% respectively, falling short of early data; TD Cowen said its anti-metastasis effect was not outstanding, and partner Merck fell 1.76%.

Procter & Gamble rose 5.58%: strong earnings attracted safe-haven funds, driving defensive blue chips higher against the market, with Hershey up 4.67%, Home Depot up 4.33%, Johnson & Johnson up 3.81%, Coca-Cola up 2.88%, and McDonald's up 2.59%.

The Mag 7 fell 2.80%, with only Apple rising 1.23% to a record high against the market, its market cap at $5.08 trillion approaching Nvidia, mainly due to its abundant cash flow and the $1,999 foldable iPhone Duo selling out immediately upon launch today (deliveries pushed to January next year). The rest all fell: besides Meta and Nvidia, Amazon fell 4.57%, Google fell 3.08%, and Microsoft fell 2.23% on cloud spending concerns; Tesla fell 3.08% after cutting full-year capital expenditure from $25 billion to $20 billion in its Q3 report, raising concerns over autonomous driving and robotics progress.Crown Castle International surged over 7% in after-hours trading: the main reason is that SpaceX is in talks with it to lease 80,000 base stations, potentially bringing a multibillion-dollar major order.

Western Digital continued to fall 6.68% in after-hours trading: despite Q1 revenue surging 55%, Q2 guidance exceeding expectations, and a 17% dividend increase, it still could not withstand the AI storage selloff.

Bloom Energy (BE) plunged 7% after hours: although Q3 revenue soared 138% and it raised its full-year guidance for the third time, net operating cash outflow of $27.15 million led to severe market punishment.