The S&P 500 shed 1.8% on Friday as a tech selloff sharpened, while AI-related debt has been a drag on the corporate bond market. MarketWatch reports that investors now watch both the bond market and the midterm elections for the next move in stocks.
The S&P 500 shed 1.8% on Friday but was still 10.7% higher on the year. The tech selloff sharpened that day, leaving Amazon, Oracle and SpaceX in the red along with semiconductor stocks.
Cboe's VIX, the "fear gauge," surged in the afternoon. It ended the session nearly 13% higher at 19.42.
AI borrowing strains credit markets
Stock market gains have relied on tech in recent years, and bond portfolios now also hinge on tech borrowing. AI-related debt supply has run at more than $400 billion this year, according to Goldman Sachs estimates, more than double the volume of 2025.
This week, investors began rewarding those willing to tap the breaks on heavy debt issuance. Microsoft sold a new $25 billion bond on Thursday, and its 10-year tranche priced at a yield of roughly 5.5%. By comparison, the 10-year Treasury yield stood at 4.93% on Friday, according to FactSet.
Meanwhile, the corporate bond index was sitting on a negative -0.95% yearly return through Oct. 29, according to Dow Jones Market Data.
The Fed and the midterms
The shift has caught the attention of the Federal Reserve. After the central bank opted not to hike interest rates in October, Chairman Kevin Warsh said on Wednesday: "Interest rates get in the cracks, interest rates affect directly or indirectly, almost everything,"
Peter Boockvar of OnePoint BFG Wealth Partners told MarketWatch he thinks the Fed might not hike rates in December if the market selloff picks up more steam.
The elections add another variable. George Catrambone of DWS said any moratoriums on building datacenters that stem out of the midterms could trigger less capital flowing to the AI build-out.
Source: MarketWatch
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