Wall Street’s pullback stretched into a second day on Thursday. The S&P 500 and Nasdaq traded lower as investors absorbed another jump in oil prices and Treasury yields that sat at or near multi-decade highs, according to CNBC’s market coverage. Growth and AI-linked stocks led the retreat, extending losses from Wednesday, when both indexes came off record highs set earlier in the week. The combined weight of crude above $102 a barrel and borrowing costs near two-decade peaks has been enough to knock the AI trade off its stride for now, even though no new bad news arrived from the sector itself.
The mechanics of the move are not complicated. Higher yields raise the discount rate applied to future earnings, which hits long-duration growth stocks hardest. Oil adds an inflation problem on top: Brent crude rose nearly 4% on Thursday, back above $104, after fresh attacks on a ship in the Middle East, its biggest one-day jump in a month. That combination, energy shock plus hawkish Fed, is the same one that produced the September correction, and traders recognize the pattern.
Labor still firm
One number pushed the other way. Initial jobless claims fell to 197,000 in the week to October 8, down from a revised 199,000 the prior week, per UCapital’s market desk. A tight labor market is good news for companies and bad news for the rate-cut narrative. With the Fed having hiked to 3.75-4% in September, a decision the minutes released Wednesday showed was unanimous, and most officials seeing one more increase by year-end, resilient hiring data keeps the hiking cycle alive rather than fading it out.
Fed Governor Christopher Waller spoke at the Istanbul Economic Forum on Thursday on the US economy and central bank communication, keeping the Fed’s voice in the market at a moment when every basis point of expected policy is being repriced. The ten-year Treasury yield has been pressing toward and above the 5% mark in recent weeks, levels last seen decades ago, and bond desks have been the main character of this week’s trading more often than equity desks.
| Driver | Latest reading | Context |
|---|---|---|
| Brent crude | Above $104, up nearly 4% | Biggest one-day jump in a month after tanker attacks |
| Initial jobless claims | 197,000 | Down from a revised 199,000 prior week |
| Fed funds rate | 3.75-4.00% | September hike was unanimous; most officials see one more by year-end |
| 10-year Treasury yield | Near multi-decade highs | Pressed above 5% in recent weeks |
| S&P 500, Oct. 1 | 7,668.82 | Bounced from a two-week low on a bond-selloff reversal |
What the AI trade is pricing
The AI trade has been the engine of the equity market’s run to records earlier this week. Nothing in Thursday’s session questioned AI demand itself. The pressure is financial: money market funds still pay a fighting yield, the marginal buyer of a 30-times-multiple stock needs a falling rate environment to feel comfortable, and the oil shock makes the Fed’s next move more likely to be up than down. When the same AI names set records last week, futures markets put the odds of another hike this year near a coin flip. Each strong labor print and each dollar added to Brent pushes those odds higher.
There is also a crowding issue. The S&P 500’s run to records came on narrowing leadership, and pullbacks like this one tend to reveal which holdings are there for the story and which are there for the earnings. Wednesday’s session already showed the pattern: the indexes slipped from records and the decline concentrated in the AI-tied names that had led the rally, while the broader market moved less. Thursday extended it. The Nasdaq’s composition, heavy in exactly the companies most sensitive to discount rates, makes it the index that pays first when yields move.
Company news has not helped the tone either. GlobalFoundries announced a five-year, $2 billion deal with TSMC to build silicon interposers at its New York plant, a genuine win for US chip packaging capacity, but even positive supply-chain headlines are not enough to lift a tape that is trading macro. Alibaba mapped out an AI roadmap with Qwen 4 in training and a 20-gigawatt cloud target, and the stock story barely moved the needle outside Asia. When the rate environment dominates, good news gets ignored and bad news gets amplified.
The oil problem is not going away fast
Energy is the piece with the most momentum. Brent finished Wednesday near $100 after the IEA agreed to accelerate oil stock releases and put diesel first in the release order, a plan that mostly repackaged barrels already pledged under a March program. Thursday’s fresh tanker attack in the Gulf undid that containment, adding roughly 4% in one session. Hormuz risk has been the market’s recurring nightmare since the strikes began, and each incident reprices shipping insurance and physical premiums along with futures.
For equities, the transmission runs through two channels. Fuel and freight costs squeeze margins for transport, airlines and chemicals. And the inflation impulse hardens the Fed’s stance, which lifts yields, which pressures valuations. The bank sector, interestingly, has been a relative haven in this environment, since higher short rates restore net interest margins that were compressed for years.
The calendar offers little relief. Earnings season is about to start in earnest, and guidance will be written in a currency of higher rates and expensive energy. If companies guide through the macro noise, the record-setting rally can resume. If they do not, the two-day pullback will look like the early part of a larger repricing. For now the market has chosen to trade the macro, not the technology, and the macro is pointing the wrong way for growth stocks.