Last Week on Wall Street - Week of October 5th

Last Week on Wall Street

Three Moods in Five Sessions, and the Last One Won

Record closes to open the week, borrowing costs at levels this market has not seen in twenty-four years in the middle of it, an artificial intelligence scare on Thursday, and then a social media post that put the whole thing back together.

The S&P 500 and the Nasdaq both finished the week higher, and both of them earned it the hard way. Tuesday was a record close for each. Wednesday and Thursday took most of it back. Friday handed it over again in a single session. If you only looked at the tape once, on Friday afternoon, you would think it had been a quiet week.

The bond market ran the first half of it. The ten-year yield pushed to a level this market has not seen in more than two decades, and the minutes from the Fed's September meeting landed Wednesday afternoon with most of the committee still expecting another rate increase before the year is out. Stocks did not love that, though they did not really hate it either. The actual damage came Thursday, when the Financial Times reported that the revenue figure everybody had been using for OpenAI was considerably larger than the one the company has been giving investors. Semiconductors went straight down and took the index with them.

Then, Thursday night, a post. The president wrote that talks with Iran were productive and that there would be no attack before the November 3 midterms. Crude, which had spent the week climbing on the Strait of Hormuz and on a Category 3 hurricane shutting in most of the Gulf's oil production, gave a chunk of it back Friday morning. Technology rebounded, the tape went green, and the ten-year ended the week a few basis points below where it started. Tuesday brings a CPI print and the banks opening third-quarter earnings the same morning. That is a lot of weight for a market whose last two sessions moved hard in opposite directions for reasons that had nothing to do with each other.

Somebody Checked the Biggest Number in AI, and It Came Back Smaller

The key takeaway, a figure near $70 billion had been circulating among investors as OpenAI's annualized revenue. On Thursday the Financial Times reported that the company has been telling investors the real number is approaching $50 billion. The chip complex did not wait around for the explanation.

The Financial Times reported Thursday that OpenAI has told investors its annualized revenue is approaching $50 billion, roughly $20 billion below a number that had been passed around in late September. That larger figure, per the FT, came out of material shared with investors and was framed to line OpenAI up against Anthropic, which is now about a month from its own public listing. Part of the gap is arithmetic rather than demand: the two count annualized revenue differently, and Anthropic includes sales booked through its cloud partners while OpenAI does not.

The market's reaction was not proportionate to a definitional footnote. Semiconductors led the tape lower, with the Philadelphia Semiconductor Index off as much as 4% intraday before it trimmed the loss, and the names tied most directly to building AI capacity took the worst of it. That is the tell. The AI trade has been underwritten for two years by projections nobody has had to defend on a quarterly call, and a reported revision to one private company's top line was enough to open a four percent hole in the sector in an afternoon. Most of it came back Friday. The number that did the damage was not in a filing, was not audited, and did not come from the company, which is a useful thing to notice about a trade this size roughly a month before the first of these businesses has to start reporting in public.

SOURCE: CNBC: AI stocks sink on OpenAI revenue report →

Borrowing Costs Hit a Twenty-Four-Year High, and the Fed Said There May Be One More

The key takeaway, the ten-year Treasury yield touched roughly 5.37% on Wednesday morning, its highest since 2002. Hours later the Fed's September minutes showed most of the committee still expecting another increase before year end. December is now priced as close to a sure thing.

The ten-year yield reached about 5.37% early Wednesday, a level last seen in 2002, then settled back toward 5.29% after a $39 billion auction of ten-year notes cleared. That afternoon the Federal Reserve released the minutes of its September meeting, which recorded that most participants viewed another rate increase as likely before the end of the year. By the close, the CME's FedWatch tool had the odds of a quarter-point move in December at roughly 83%.

Two things are running at once here and they do not usually run together. This tightening cycle started because energy costs were pushing inflation, not because the labor market was hot, and last week's payroll miss took October off the table without laying a finger on December. Meanwhile the long end has been climbing under its own power, on supply and on a term premium that has been quietly rebuilding all year. Yields have added more than a full percentage point since January while equities set records, which is a pairing the last twenty years of market history offers almost no guide to. The ten-year finished the week slightly lower than it started. That is the only part of this that looks calm.

SOURCE: Markets News: US 10-year yield hits highest level since 2002 →

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