Oil Rises as Yields Break 5%

GOOD MORNING, Oil rose, Treasury yields broke above 5%, and AI spending came under a tougher market test ahead of the Fed's rate decision.

---

MARKETS | TLDR

• U.S. stocks closed lower: The Dow closed at 52,093.11, down 0.63%; the S&P 500 fell 0.45% to 7,585.73; and the Nasdaq dropped 0.78% to 25,981.57.
• Oil and energy moved higher: WTI rose 4.4% and Brent gained 2.9%, while the S&P energy sector was the session's exception, up 2.3%.
• Treasury yields broke above 5%: The benchmark yield reached its highest level since 2007, according to Reuters.
• Fed hike expectations surged: CME FedWatch put the probability of a rate hike at 94.5%, up from 33.1% a month earlier, Reuters reported.
• Crypto-linked stocks took a hit: Coinbase fell 10.1% and Strategy dropped 5.4% as bitcoin weakened.

---

FED, OIL AND RATES

Oil Makes the Fed's Job Harder

Reuters reported that the CME FedWatch probability of a rate hike on September 16 rose to 94.5%, from 33.1% a month earlier. The backdrop included hotter inflation data and a nearly 25% rise in U.S. crude over two weeks. Peter Tuz, president of Chase Investment Counsel, told Reuters that higher fuel prices, the prospect of rising rates, and concern around the AI ecosystem were making investors more cautious.

Paul Nolte of Murphy & Sylvest told Reuters that oil was becoming a source of inflationary pressure across other parts of the market. The September 15 session reflected that link: longer-term yields rose, oil gained, and equities fell ahead of the Fed's decision.

---

AI CAPEX AND MARKET EXPECTATIONS

AI Has Less Room for Error

Technology giants are expected to spend nearly $800 billion on AI capital expenditure in 2026, Reuters reported, citing BofA Global Research. That spending has supported growth across hyperscalers and semiconductor companies, while encouraging the market to assume that demand for AI infrastructure will keep expanding.

Reuters also reported that investors are looking for clearer evidence about the pace of the buildout. Some AI leaders have called for slower development, while the safety and regulatory debate adds another layer of risk beyond chip and data demand. Reuters cited the counterargument that a credible safety framework could make long-term investments easier to finance rather than automatically breaking the buildout.

In the same session, higher yields came with pressure on semiconductor shares, while the S&P 500 and Nasdaq were about 2% below their all-time highs, Reuters reported. The market's question is becoming more specific: are revenue, orders, and construction progress strong enough to justify the scale of spending?

---

HEADLINES

• Energy moved against the market: The S&P energy sector rose 2.3% as the major indexes fell. Higher oil was the direct support for the group's gains during a risk-off session.
• Crypto-linked stocks took a harder hit: Coinbase fell 10.1% and Strategy dropped 5.4%. Reuters linked the move to weaker bitcoin and the Senate failing to advance a procedural step on comprehensive crypto legislation.

---

UPCOMING

• October 2, Employment Situation: The BLS is scheduled to release the September jobs report at 8:30 a.m. ET. It will be the next major labor-market data point for updating the growth and price-pressure picture.

---

DEEP INSIGHTS

Reuters on the AI Capex Debate

Reuters places nearly $800 billion in expected AI capital spending beside two competing views: concern that the buildout could lose momentum, and the argument that clearer safety rules could make long-term projects easier to finance. The piece also connects the debate to semiconductor shares, higher yields, and the sensitivity of indexes still near their highs.