Chip Stocks' Worst Day Since June: Nasdaq Falls 2.6% as 10-Year Yield Drops Below 5%

Good morning. Chip stocks had their worst day since June on Thursday, and investors ran to the bond market. The Philadelphia chip index fell 6.7%, the Nasdaq 2.6% and the S&P 500 1.2%, yet most stocks rose: the equal-weight S&P 500 gained 0.8%. The 10-year Treasury yield fell 17 bp to 4.96%, back below 5%. Overnight, US stock futures are mixed, Seoul's Kospi climbed back from a 4% drop to close up 0.3%, and Brent crude is above $114 (CNBC, ~3:40 AM ET; Reuters).

Stocks, VIX and yields are Thursday's close. Futures, oil and gold as of ~3:40 AM ET Friday vs. Thursday's settle. Dollar index and crypto as of ~3:50 AM ET (crypto vs. its 24-hour open). Nikkei and Kospi are Friday's close; Hang Seng is Friday's session, live, as of ~3:35 AM ET. Stoxx 600 is Friday's session, live, as of ~3:35 AM ET.

One-line read: The biggest AI names fell hard, the rest of the market rose, and bonds had their best day in years.

The Philadelphia Semiconductor Index fell 6.7% Thursday, its biggest one-day drop since June 23, after Meta's earnings revived worries about how much the AI build-out costs and who pays for it (Reuters). Meta fell 7.0% to $648.85 after reporting its first cash outflow in more than a decade and a plan to issue non-voting shares (Reuters; CNBC). Lam Research fell 11.8% after its finance chief said December-quarter guidance "would have been a bit higher if not for some near-term supply chain constraints" (Yahoo Finance; CNBC). The Nasdaq fell 2.6% to 26,008.86, its steepest drop since early June, and the S&P 500 lost 1.2% to 7,663.43, its worst day since July (Reuters; AP). The Dow added 11.89 points to 52,867.98. "It's a wonderful day on Wall Street," Murphy & Sylvest's Paul Nolte said, adding that the only part of the market "really suffering here is technology" (Reuters). Both halves of that sentence were true.

The numbers: Intel fell 8.0%, AMD 8.1%, Marvell 8.7%, SanDisk 8.5%, Applied Materials 8.2% and Micron 6.3%; Nvidia lost 4.4% and Broadcom 4.3% (CNBC). SpaceX fell 9.1%, CoreWeave 10.1%, Amazon 4.6% and Alphabet 3.2% (CNBC). The S&P 500's tech sector fell about 3% (CNBC). Away from AI, Spotify rose 11.1%, Blackstone 8.4%, Lockheed Martin 7.0% after raising its forecast, Procter & Gamble 5.6% after beating estimates, and Union Pacific 3.6% (Reuters). The equal-weight S&P 500, which gives every company the same slice, rose 0.77% (CNBC). AP said most US stocks rose. Even after Thursday, the chip index is up 51.5% this year, against 11.9% for the S&P 500, but 26% below its June 22 record close (Reuters).

Why it matters: An S&P 500 or Nasdaq-100 index fund weights companies by size, so the giant AI names drive it. On Thursday that meant the fund fell while most of the companies inside it rose. Nvidia's Jensen Huang told CNBC "there's a scarcity of capital" for the AI build-out, and Ed Yardeni called the AI trade a "bubble," adding that "taking some air out" of it "is a good thing" (CNBC).

What to watch: S&P 500 futures are down 0.09%, Nasdaq-100 futures up 0.09% and Dow futures down 0.39% as of ~3:40 AM ET (CNBC). For the week through Thursday, the S&P 500 is up 0.05%, the Nasdaq down 0.5% and the Dow up 1.7% (FRED; our math). Alphabet and Microsoft report next Wednesday, Oct. 28, and Amazon on Thursday, Oct. 29 (CNBC).

The 10-year Treasury yield fell 17 bp to 4.96% Thursday, its first close below 5% since Sept. 22 and its biggest one-day drop since August 2024, by Treasury's closing measure (US Treasury; FRED; our math). On market quotes, Reuters counted 19.3 bp, the biggest drop since March 2023. The 2-year fell 16 bp to 4.65% (US Treasury). Traders also pulled back on Fed hikes: fed funds futures put the chance of a hike at next Wednesday's meeting at 9.4%, down from 15.5% Wednesday, and the odds of a hike by December at 79.9%, down from 89.7% (CME FedWatch, as of ~3:40 AM ET). The labor market gave no reason to hurry: weekly jobless claims fell 6,000 to 194,000, a three-month low, against 200,000 expected (Labor Department via Bloomberg). "US Treasury bonds are — gasp — working as your hedge again," Nomura's Charlie McElligott wrote (Reuters).

Why it matters: When yields fall, bond prices rise, so the bond fund in a 401(k) had a good day. The 30-year mortgage rate averaged 7.32% this week, down from 7.40% and its first drop in two months (Freddie Mac via FRED; Yahoo Finance). That survey was taken before Thursday's rally. Rate-sensitive stocks moved first: a homebuilder ETF rose 3.8% and a regional-bank ETF 2.5% (CNBC).

Brent crude settled up 4.0% at $113.17 a barrel, its highest close since May 4, and US crude (WTI) rose 2.4% to $99.47 (Dow Jones via Morningstar; CNBC). Houthi attacks in Saudi Arabia drove the move, and Saudi Aramco told staff to evacuate its Dhahran headquarters (Reuters). CNBC also tied the jump to a report that the US and Israel were drawing up plans for renewed attacks on Iran. Overnight, Brent hit $114.10, a new five-month high, and is on track for a 3.9% weekly gain (Reuters); it is at $114.02, with WTI at $100.50, as of ~3:40 AM ET (CNBC). Valero, the refiner, posted its highest-ever quarterly profit, as the conflict pushed refining margins up (Reuters).

Why it matters: Fuel shows up in your gas bill first and in airline fares and shipping costs next. Union Pacific flagged a hit from rising fuel prices even as it beat estimates (Reuters). Investors worry that oil could keep inflation hot and the Fed raising rates (Reuters).

American Express posts third-quarter results around 7:00 AM ET, with a call at 8:30 AM ET (American Express). S&P Global's flash October PMIs, an early survey of purchasing managers that works as a temperature check on business, land at 9:45 AM ET (S&P Global). The University of Michigan's final October consumer sentiment reading follows at 10:00 AM ET (University of Michigan). Its preliminary reading was 46.3, down from 48.1 in September, and year-ahead inflation expectations rose to 4.7%, the highest since May (University of Michigan). SLB, the oilfield-services company, holds its earnings call at 9:30 AM ET (SLB).

Why it matters: AmEx's card spending is a read on higher-income shoppers, and it sits in plenty of S&P 500 and financials funds. Inflation expectations matter to the Fed, which meets Tuesday and Wednesday next week.

The 10-year slid back below 5%. For context, the 10-year started July at 4.48% and peaked at 5.31% on Oct. 5, its highest close this year. Notice Thursday: one 17 bp drop did about half the work of the 35 bp slide since that peak, as money left AI stocks for Treasuries.

Source: US Treasury daily par yield curve rates (10 Yr, 2 Yr), data through Oct. 22, 2026; FRED DGS10 for the one-day-change history since 2022. Our math.

The regular S&P 500 weights each company by its stock-market value, so the biggest companies move it the most. The equal-weight S&P 500 holds the same companies but gives each one the same slice. Think of a group vote where the biggest shareholders get the most votes, versus one where every member gets one vote. On Thursday the big-vote version fell 1.21% and the one-vote version rose 0.77% (CNBC). That gap says a handful of the largest AI-linked stocks fell hard while the typical company had a decent day. Both versions are sold as index funds; most S&P 500 funds in a 401(k) track the regular one.

Know someone who checks the chip stocks before their coffee? Forward this. They can sign up free at theovernightdesk.com.

That's the desk. See you Monday at 6 AM ET.

— The Overnight Desk Team

Note: The Overnight Desk Team may hold positions in assets discussed. Nothing here is investment advice. · Sponsor: No one paid for any mention in this issue.