Wall Street Surges on AI and Oil Drop, but Fed Rate Hike Worries Loom
Wall Street opened the week with strong gains driven by AI stocks and falling oil prices, while Federal Reserve rate hike expectations and AI bubble concerns weigh on investors.
Wall Street kicked off the trading week with a strong surge, driven by robust gains in AI-related equities. This momentum was supported by a sharp drop in global oil prices and a decline in US government bond yields. In the background, President Donald Trump decided to refrain from launching a strike against the Houthis in Yemen for the time being, and indicated in a Fox News interview that he would likely be open to meeting Iranian President Masoud Pezeshkian at the UN General Assembly this week.
Global Markets and Sentiment
The sharp market movements illustrate that the trading week will be heavily influenced by geopolitical developments. The ongoing conflict between Saudi Arabia and the Houthis continues, war winds are blowing in Europe, and President Trump is scheduled to meet with his Chinese counterpart Xi Jinping on Thursday. Despite today's gains on Wall Street, markets are expected to remain sensitive to adverse news due to the absence of significant catalysts, such as corporate earnings or major macroeconomic releases.
Meanwhile, markets are still digesting the implications of the Federal Reserve's interest rate hike last week, with growing expectations that it signals the beginning of a full monetary tightening cycle. In Tel Aviv, trading will be closed on Friday due to the observance of the Sukkot holiday.
Investors Turn Pessimistic as Wall Street Hits Records
While final arbitrage gaps for dual-listed stocks will only be determined at the close of today's Wall Street session, it is already clear that chip stocks such as Tower Semiconductor, Nova, and Camtek will rise, following gains in the New York semiconductor sector. The Tel Aviv Stock Exchange returned from a week that closed on a mixed note: the TA-35 index rose by about 1.6%, the TA-90 index slipped by about 1%, and the TA-125 index strengthened by about 1%.
Today's attention is firmly fixed on New York, where Wall Street opened the new week with a strong rally. The S&P 500 is climbing by about 1.5%, the Nasdaq is jumping by over 2%, and the Dow Jones is advancing by approximately 0.6%. The gains are led by technology and AI stocks, with Intel surging over more than 10%, and AMD jumping sharply while crossing the $1 trillion market cap threshold for the first time.
"At some point, all cycles end," said Brian Levitt, chief global market strategist at Invesco. "This cycle, I don't think it's going to end necessarily because of higher interest rates anytime soon, or because of higher oil prices. It's going to end when something breaks in the AI trade; when one of the tech giants slows down its investments, or when the market views the amount of investment as excessive compared to the returns on them."
Oil Prices Drop and Crypto Surges
Reflecting the sharp gains on Wall Street, the shekel is strengthening against the dollar by about 0.4%, with its continuous rate hovering around 3.01 shekels, even as the dollar gains globally. The US Dollar Index (DXY) is climbing by about 0.15%. Oil prices are retreating sharply by over 4%, with Brent crude trading just below the $100 per barrel mark, and WTI crude trading around $92 per barrel.
In the crypto market, Bitcoin is surging this evening by about 6% and trading around the $86,000 mark per coin, reaching an eight-month high. Crypto-related stocks are jumping sharply, including Coinbase Global, Strategy, and Robinhood Markets. Investors are assessing whether the "crypto winter" that followed Bitcoin's all-time high of over $126,000 in October 2025 has come to an end.
AI Bubble Concerns Rise
Independent macroeconomic research firm Capital Economics forecasts a bleak future for Wall Street, predicting in a recent report that the S&P 500 will climb to 8,250 points by the end of this year before plunging by a sharp 20% by the end of 2027 to 6,500 points. The primary reason for the forecast is an anticipated trend reversal in the AI sector, comparing current dynamics to the dot-com bubble of 2000.
