Global Markets Shake as Tech Stocks Plunge, Oil Surges and AI Debt Mounts
Global markets grapple with sharp tech losses, soaring oil prices, and elevated bond yields. While Israeli inflation eased, US consumer prices surprised upward, prompting major banks to advise caution on AI-driven tech stocks.
Global markets face a challenging trading week following sharp losses in Wall Street chip stocks, driven by soaring oil prices, multi-year bond yields, and growing concerns over heavy AI debt burdens. Meanwhile, upcoming Israeli elections and US midterms point to heightened near-term volatility.
Macroeconomic Events and Earnings
The central macroeconomic event this week will be the Bank of Israel's interest rate decision on Wednesday, accompanied by new forecasts from its research division. Economists expect a low probability of a rate reduction. In corporate earnings, two of the Magnificent Seven—Meta and Tesla—will report financial results on Wednesday, following Netflix on Tuesday.
Wall Street Volatility and Chip Sector Slump
Following steep Wall Street declines, the Tel Aviv Stock Exchange is expected to open lower, with dual-listed shares returning a negative arbitrage gap of roughly 0.8%. Chip stocks including Tower (-7%), Nova (-3.2%), and Camtek (-2.2%) will face downward pressure, while Palo Alto Networks is projected to drop over 8%.
Despite the negative US sentiment, the local bourse concluded a strong week. The Tel Aviv 35 Index jumped nearly 4%, the TA-90 added 5%, and the TA-125 rose 4.2%. The rally was led by the construction sector, surging 9.7% for its biggest weekly jump since March, supported by a slightly sharper-than-expected drop in September's Consumer Price Index.
In New York, technology and AI stocks dragged down the broader market. The S&P 500 fell about 2%, and the Nasdaq dropped 4.5%, marking their weakest weekly performance since June. The Dow Jones added 0.7%, while the VIX volatility index climbed above 22 points for the first time in four months.
The SOXX ETF tracking the semiconductor sector plummeted 11.8%—its sharpest weekly drop since March 2025—entering bear market territory down nearly 25% from its June peak. Investors grew increasingly anxious over massive debt loads accumulated by tech firms building AI infrastructure. Cloud computing firm CoreWeave, with total debt exceeding $50 billion, saw its stock plunge 25% last week, while its 2031 bond yield spiked above 15%.
Lorenzo Di Mattia, chief investment officer at Sibilla Capital, told the Wall Street Journal that AI expansion plans and capital expenditures will inevitably have to slow down as borrowing costs reach unsustainable levels. Di Mattia noted he holds a modest short position on US equities.
Surging Oil Prices and Geopolitical Pressures
Driven by escalating Iranian attacks on tankers in the Strait of Hormuz and ongoing regional conflicts, oil prices recorded sharp gains. Brent crude jumped nearly 5% to close just below $110 a barrel, while WTI crude surged over 10% to close at $101 a barrel.
On Friday, Saudi Arabia intercepted Houthi missiles over the Red Sea, with one targeting an export terminal in Yanbu. Meanwhile, CNBC reported that at least nine oil tankers were attacked by Iran in the Strait of Hormuz over the past week. In the Russia-Ukraine war, Donald Trump's proposed energy ceasefire failed to hold, with Russian strikes on Ukrainian infrastructure drawing vows of retaliation from Volodymyr Zelensky.
Inflation Divergence: Israel vs. US
September inflation in Israel surprised to the downside, with the CPI falling 0.5%, bringing annual inflation from 1.5% to 1.6%. Nonetheless, economists agree the likelihood of a Bank of Israel rate cut remains low due to widening interest rate differentials favoring the US.
Conversely, US inflation data surprised to the upside. The Consumer Price Index rose 0.6% monthly, pushing annual inflation to 3.7%, well above the Federal Reserve's 2% target. Core inflation climbed to 2.6% annually, while the Producer Price Index jumped 1.3% monthly, reaching an annual rate of 6.3%—the highest since 2022. Despite these figures, traders price in a minimal chance of an October rate hike, favoring a December move.
Wall Street Banks Advise Caution
Prominent US investment banks advised investors against buying the dip in technology stocks. Craig Johnson, chief market technician at Piper Sandler, noted weak market breadth with Nasdaq stocks hitting 52-week lows outpacing new highs for 35 consecutive days.
Bank of America shifted to a risk-off stance for the coming month, citing four primary reasons: tech sell-offs and AI debt concerns, high bond yields and the necessity of Fed rate hikes, elevated oil prices, and election-related volatility. Chief investment strategist Michael Hartnett recommended clients increase exposure to asset classes that benefit from capped bond yields, including small-cap stocks, REITs, and consumer discretionary shares.
