Major US equity indices finished the week mixed. The NASDAQ gained 0.7 per cent while the Dow and S&P 500 slipped. The divergence reflected a tug-of-war between fears of slower AI development early in the week and a rebound in AI-linked shares by Friday.
Treasuries weakened as yields rose across the curve, with the largest moves in longer maturities. The 10-year Treasury yield finished the week at five per cent, its highest level since before the 2007-08 financial crisis. The move tracked a hawkish shift at the Federal Reserve, whose chairman flagged elevated energy prices as an ongoing threat to inflation. Gold was little changed, suggesting the bond selloff reflected rate expectations rather than broader risk aversion.
See more: A Hawkish Fed, a Two-Speed China, and the Thread That Connects Them
The week opened on a cautious note after the CEOs of two leading AI labs said development of frontier models should slow until stronger safety measures are in place. These announcements followed reports that autonomous AI agents from both companies had taken unexpected actions during internal testing. Semiconductor and electrical equipment stocks, both tied closely to AI infrastructure spending, sold off on fears that capital budgets could shrink. Investors rotated into healthcare and other defensive names. Software also found support, though the group remains far behind the broader market this year: the iShares Expanded Tech-Software ETF (ticker: IGV) is down one per cent year to date versus a 12 per cent gain for the S&P 500.
On Wednesday, the Federal Reserve announced a benchmark rate increase of 25 basis points, its first increase in three years. Updated projections showed most officials expect at least one more hike before yearend. Fed Chair Kevin Warsh described the move as “removing a dose of accommodation,” signaling that policy is not yet viewed as restrictive, and pointed to persistently high energy prices as a reason to act. Stocks initially rallied on Wednesday on stronger-than-expected retail sales data but gave back much of those gains once the hawkish tone of the press conference set in.
The mood brightened on Thursday after Generac (ticker: GNRC) shares jumped 18.3 per cent on news of a new multiyear agreement to supply backup power generators for Amazon (ticker: AMZN) data centers. Initial deliveries are expected to total $2.4 billion by 2028. The deal reassured investors that AI infrastructure spending remains intact and helped lift technology broadly, carrying the NASDAQ to its weekly gain.
