Tuesday's U.S. stock and Treasury markets lacked clear direction, with traders staying cautious ahead of the week's first labor market data and a series of AI-related events. Oil prices fluctuated. Bond yields remained near multi-year highs, putting stocks in an awkward position. Investors are preparing for an era in which short-term borrowing costs may remain elevated for a prolonged period. As of press time, Dow futures rose 0.29%, S&P 500 futures gained 0.26%, and Nasdaq futures climbed 0.45%. The MSCI All-Country World Index sat at a more than one-week low. Gains in technology shares helped Europe's Stoxx 600 rise 0.3%.

Spotlight on Trump Luncheon Developments

The week began with sharp swings, as dramatic moves in oil prices triggered simultaneous selling in both stocks and bonds, and investors are now trying to find fresh direction. One of the key events that could shape markets is a luncheon between U.S. President Trump and technology industry leaders on AI safety risks, with traders watching closely for signals from the talks. At the same time, discussion of AI's potential risks has intensified, with some industry executives, including Anthropic CEO Dario Amodei, calling for a slower pace of AI development. As Amodei and others prepare to meet with Trump, traders will also focus on OpenAI CEO Sam Altman's remarks on related issues at the company's annual developer conference. ChatGPT developer OpenAI is currently delaying the release of a version of its Astra model to further strengthen safety precautions.

Bond Market Lacks Direction

The bond market is similarly directionless, with the U.S. 10-year Treasury yield holding near a 19-year high and on track for its largest monthly increase since 2024. France's 10-year yield stood at 4.7619%, near its highest since 2008 and on pace for its biggest monthly rise since 2022. The seven-month Middle East conflict is one major reason investors are repricing inflation and rate expectations. At the same time, rapidly expanding government debt, combined with large-scale debt issuance by global AI companies, has pushed bond yields even higher. September may become one of the worst months for selloffs in Europe's highly indebted economies and the U.S. bond market. Sovereign bond yields are a crucial pricing anchor for global financial markets, determining not only the reference returns investors use when allocating to riskier equities but also directly affecting mortgage and corporate financing costs. The higher rates go, the greater the budget pressure on governments, businesses, and households. John Plassard, head of investment strategy at Switzerland's Cité Gestion, said: "Investors still expect that such a tight financial environment will eventually weigh on the economy, but employment, consumer spending, and AI-related capital expenditure remain solid for now." He added: "The real question is not whether a 5% interest rate level is comfortable, but whether the U.S. economy has become less sensitive to rates than in the past. If this resilience persists, the Fed can keep rates higher for longer without immediately triggering a recession." Despite rising financing costs clouding the outlook for economic growth and corporate earnings, equities have shown considerable resilience in recent weeks. Still, the market continues to question whether chipmakers and other AI-related stocks can keep climbing, especially amid concerns over lofty valuations and whether massive capital expenditure will generate reasonable returns.

Dollar Strengthens, Market Watches Central Banks

The dollar edged higher. High U.S. Treasury yields, plus uncertainty over how long the Middle East conflict will last, are supporting the dollar against the euro and yen. The euro traded at 1.1347 against the dollar, while the dollar was at 157.34 yen. The dollar index, which measures the greenback against six major currencies, is on track for its first monthly gain since June. Brent crude traded in a choppy range as the market awaited signs of progress in U.S.-Iran peace talks. Although U.S. and Iranian officials renewed efforts to end the conflict, President Trump previously rejected a proposal backed by Tehran, leaving markets cautious about the Middle East. U.S. inflation and employment data due later this week will be key factors shaping the Fed's future rate path. According to the CME FedWatch tool, investors currently see about a 72% probability that the Fed will raise rates by at least 25 basis points in October.

Inflation Impact Reappears

The effects of rising inflation were evident again on Tuesday. The Reserve Bank of Australia raised rates that day, lifting borrowing costs to roughly a 15-year high. Meanwhile, Spanish inflation moved further above the European Central Bank's 2% target, reinforcing the case that euro-area rates may need to rise further. In the UK, gilts outperformed other major European bond markets. Investors are awaiting a speech by UK Prime Minister Andy Burnham at the ruling Labour Party conference in Liverpool. UK officials expect Burnham may signal a desire to begin discussions on reforming the state pension system to help fund social care spending.

Gold Struggles to Rebound Clearly

Gold prices remained unable to stage a meaningful rebound from a more than seven-week low, as higher bond yields capped upside for the non-yielding metal. Gold last traded at $4,141.79 an ounce. A team of analysts led by Mark Haefele at UBS Global Wealth Management said: "Still, we remain bullish on gold and silver. Gold is supported by global reserve diversification and strategic asset allocation demand, while silver benefits from structural demand from data centers, AI infrastructure, and electrification." In crypto, Bitcoin rose slightly by 0.6% to $84,020.25. Bitcoin has now pulled back about 4% from the more than seven-month high hit earlier this month.

Data Storm Approaches

Meanwhile, a dense batch of U.S. labor market data is about to begin, starting with the August job openings report. The market will also watch speeches from six Fed officials for clues on the future rate path. Currently, the market has priced in the possibility of up to four rate hikes over the next 12 months. Geoff Yu, senior macro strategist at BNY Mellon, said: "There has already been considerable volatility in recent days, and the truly important data catalyst will be Friday's nonfarm payrolls report, so I think it's reasonable for investors to adjust positions now. Also, with month-end approaching, there will be some passive flows unrelated to economic data."

Goldman Sachs Warns: Risk Premiums Hit Five-Month High as Investors Begin to 'Choke'

Amanda Lynam, head of credit strategy at Goldman Sachs, said a surge in corporate bond supply in the U.S. high-yield market is starting to overwhelm bond investors and has pushed risk premiums to their highest level in five months. Lynam said in an interview on Monday: "The market is preparing for a bout of periodic indigestion similar to what appeared in the investment-grade bond market earlier this summer. The same thing is happening in the high-yield bond market."

A Big Reversal Amid the Treasury Selloff! Bond Veteran Bianco Turns Bullish for the First Time in Six Years, Calling 5% Yields a 'Value Buy'

On Wall Street, few people choose to turn bullish at the darkest moment for bonds. But Jim Bianco did. The macro strategist, with more than four decades of experience and stints at First Boston and UBS, now heads Chicago-based Bianco Research. Since the 10-year Treasury yield hit a record low of 0.3% during the depths of the pandemic in 2020, he has been one of the bond market's most steadfast bears. Now, with benchmark yields surging to near two-decade highs, he has for the first time unclenched his bearish fist and is gradually building long positions in a stance he calls a "value buy."

Worse Than 2008? Beyond the AI Bubble, a New Fund Backed by 'Big Short' Burry Targets Private Credit Risk

While Wall Street is busy searching for bubble signs in AI stocks, a new hedge fund linked to "Big Short" Michael Burry is looking at another potentially more dangerous area: private credit. Minerva Investment Management, a short-biased strategy fund managed by Lakshmi Ganapathy, has hired Burry as a senior advisor. The fund is seeking short targets in industries such as healthcare, retail, restaurants, and small banks. Ganapathy said many companies in these industries have financing tied to private credit and may be quietly "rotting." Short-biased strategy funds are typically set up as hedge funds and mainly profit when stock prices fall. Ganapathy declined to disclose specific short targets or the fund's size. She said the fund will launch later this month. "AI does not represent the entire market, even though it looks like it does," Ganapathy said. "For us, credit is the leading indicator and signal for judging market direction."

Consulting Giant Bain: Global AI Industry Needs $6 Trillion in Annual Revenue to Support Data Center 'Cash-Burning Spree'

Global consulting giant Bain said the global artificial intelligence (AI) industry will need to generate $6 trillion in annual revenue by 2031 to justify the massive capital spending currently going into building data centers worldwide. In its annual global technology report on Tuesday, Bain said existing consumer and enterprise AI services could contribute at most $1.8 trillion of that, meaning $4.2 trillion in new revenue still needs to be created. Bain said the revenue gap may come from still-nascent areas such as autonomous machines and robots, as well as emerging fields including drug discovery, mental health, and energy production.

JPMorgan: Valuation Reset for the Magnificent Seven May Be Largely Complete

After the Nasdaq 100 hit a record high last week, Wall Street giant JPMorgan Chase began following the bullish calls on U.S. tech stocks from peers including Goldman Sachs, Jefferies, and Yardeni Research, which has partly driven institutions and retail investors to focus more on buying the dip during Monday's pullback. JPMorgan believes the overall valuation adjustment for the Magnificent Seven—the seven mega-cap tech giants that carry heavy weight in U.S. equities—may be largely complete, and earnings growth could again become the main force supporting share prices. JPMorgan said the Magnificent Seven's forward 12-month price-to-earnings ratio relative to the broader market has fallen to about one standard deviation below its historical median, a ten-year low.

Stocks in Focus

Fair Isaac plunged 18% after U.S. Federal Housing Finance Agency Director Pulte introduced new mortgage pricing rules. Pulte said in a post on X: "Based on feedback from lenders and consumers, we are simplifying mortgage pricing. The previous two separate pricing grids made little practical sense. Fannie Mae and Freddie Mac will switch to a single unified pricing grid, and the VantageScore credit scoring system will be incorporated into the existing FICO Classic scoring pricing grid."

Advanced Micro Devices shares rose more than 1% after the acquisition of World Lab. JPMorgan Chase upgraded Outback Steakhouse parent Bloomin' Brands to neutral from underweight, sending shares up 5%. The bank cited multiple reforms implemented by the company and the launch of a new steak product line, while also noting that "the number of tables each server handles during peak hours was cut to 4 from 6."

TD Cowen initiated coverage of SpaceX, sending shares up 1%. Analysts pointed to growth in artificial intelligence and space exploration businesses as key drivers for SpaceX.

Pharmaceutical company Summit Therapeutics PLC announced a $2 billion investment from AstraZeneca PLC, sending shares soaring 18%. Summit said in the announcement: "The company has reached an agreement with AstraZeneca under which AstraZeneca will make a strategic equity investment in Summit, and the two parties will conduct clinical collaboration around ivonescimab and sonesitatug vedotin." Both ivonescimab and sonesitatug vedotin are anti-tumor drugs.

Navitas won a government contract to develop "next-generation" chips, sending shares up 8%. Navitas Chief Technology Officer Sidas Sundaresan said in the announcement: "This marks an important milestone in the development of high-voltage silicon carbide (SiC) power devices."

Used-car retailer CarMax reported better-than-expected second-quarter results, sending shares up more than 6%. CarMax posted earnings per share of $1.16 and revenue of $7.88 billion. Analysts surveyed by FactSet had expected earnings per share of $0.73 and revenue of $7.09 billion.