U.S. 10-Year Yield Briefly Tops 5% for First Time Since 2023; Philly Semiconductor Index Slides Nearly 6%

By Tide Research U.S. equities ended Monday lower as Treasury yields jumped and chip shares sold off. The Dow Jones Industrial Average fell 0.29% to 52,421.20, the S&P 500 lost 0.48% to 7,619.98, and the Nasdaq declined 0.56% to 26,186.41. Volatility rose sharply, with the VIX up nearly 8% to 17.10. The 10-year U.S. Treasury yield pierced the 5% mark in intraday trading, reaching 5.017%—its first move above 5% since October 2023—before slipping back to finish at 4.992%. The 30-year yield peaked at 5.386%. The 10-year has risen roughly 25 basis points over the past month. Rate expectations shifted further toward tightening. CME FedWatch data shows markets pricing a 92.4% chance of a cumulative 25-basis-point rate increase by September, leaving just a 7.6% probability of no change. By October, the probability of a cumulative 50-basis-point hike stands at 44%. Morgan Stanley economists expect 25-basis-point hikes in both September and December. Goldman Sachs, which had previously expected the Fed to hold steady, revised its view last Friday and now looks for a 25-basis-point hike in September. Several forces are pushing long-end yields higher. August CPI and PPI prints beat expectations; core CPI rose 0.3% month over month versus the 0.2% consensus, while communication services prices surged 5.94% in one month, the largest on record. Fiscal concerns remain in focus as U.S. government debt expands and net interest payments exceed $1 trillion, adding to fears that long-dated Treasuries are increasingly pricing in a debt-spiral dynamic. Middle East tensions have also lifted oil prices and inflation expectations. In equities, a weekend inflection in the AI narrative was quickly reflected in Monday's trading. After a joint call by three AI leaders for a "slowdown," semiconductors and optical communications names were hit hard. The Philadelphia Semiconductor Index sank 5.92% to 10,689.46, with nearly all 30 constituents in the red. NVIDIA fell 3.36% to $210.96; Broadcom dropped more than 3.6%; AMD slid over 4%; Intel lost more than 5%; and Marvell Technology tumbled 7%. Memory chip names also came under pressure. SK Hynix fell more than 7%, Micron Technology dropped nearly 6.7%, and SanDisk and Western Digital each declined more than 5%. Optical communications stocks saw even steeper losses: Corning fell over 12%, Coherent dropped more than 12%, and Lumentum slid nearly 10%. Software and cybersecurity were among the few bright spots. ServiceNow rose more than 5%, Adobe gained nearly 4%, and Workday added over 2%. Cybersecurity outperformed, with Palo Alto Networks up 13.2% and CrowdStrike up 13.9%. Within tech, flows appeared to rotate away from chips and optical components toward software and security. Mega-cap tech performance was mixed. Alphabet rose more than 3%, Meta gained over 2.7%, Microsoft climbed nearly 2%, and Apple edged up 0.24% to $333.08. Amazon fell 1.26% and Tesla dropped 1.77%. The Windi U.S. Tech Seven Index ticked up 0.07%. Chinese equities outperformed. The Nasdaq Golden Dragon China Index rose 0.36%, iQIYI gained more than 4%, and NetEase advanced 2.06%. Geopolitics remained another major driver. Brent crude briefly broke above $109 intraday as markets weighed escalating risks to Middle East supply after Yemen's Houthi forces launched dozens of ballistic missiles and drones at an air base in Khaym Mushayt, Saudi Arabia. Brent futures jumped as much as 4.96% to a high of $109.80, while WTI climbed as much as 4.9% to $104.95. By the close, NYMEX October WTI settled up 1.34% at $101.39 per barrel, and London November Brent ended up 1.02% at $105.68. After-hours, sentiment softened somewhat after former U.S. President Donald Trump wrote on social media that Iran "wants to reach an agreement as soon as possible," calling the urgency "very" high. During a visit to Ireland on the 13th, Trump also said the conflict with Iran would end after the U.S. midterm elections in November, adding that "gas prices will drop rapidly." Risk premia continued to swing between the reality of potential supply disruptions and hopes for negotiated easing. Rising yields also weighed on financials. Bank of America fell more than 5% after CEO Brian Moynihan said third-quarter investment banking fees would decline year over year. Goldman Sachs dropped nearly 4%, while JPMorgan Chase, Citigroup and Wells Fargo each lost more than 1%. In metals and crypto, price action diverged from oil. Higher Treasury yields and a stronger dollar pressured precious metals: spot gold fell below $4,300 per ounce and slid to an intraday low of $4,281.64, down more than 1.5%. Spot silver dropped more than 2.4%. In Europe, bonds weakened as well, with the U.K. 10-year gilt yield hitting 5.4107%, its highest since July 2007; Italy's two-year yield rose 10.8 basis points on the day. Cryptocurrencies moved in the opposite direction. Bitcoin rose above $78,096, up 1.7% over 24 hours, while Ethereum climbed to $2,524, up 1.59%. Bitcoin held the $78,000 level despite the combined pressure of higher rates and geopolitical uncertainty. Today's focus 1) Whether the semiconductor selloff extends. The Philadelphia Semiconductor Index fell 5.92% on Monday, the memory chip index dropped 6.1%, and multiple optical communications names lost more than 10%. Tuesday's session will help determine whether this was a short-term capitulation move or the start of a more sustained, trend-driven correction. Orders tied to AI infrastructure are still being validated, keeping the tension between fundamentals and valuation front and center. 2) Whether the 10-year yield can hold above 5%. After topping out at 5.017% intraday Monday, it ended at 4.992%. The 5% level has been a key resistance line since October 2023. A renewed move higher that sustains a breakout could reintroduce valuation compression for high-multiple assets. Positioning ahead of the Fed's September policy decision will also be a key driver.