NEW YORK (AP) — Artificial-intelligence stocks are holding a bit steadier Tuesday following their worldwide slide the day before, as Wall Street drifts lower in the countdown to a decision coming from the Federal Reserve.
The S&P 500 slipped 0.2%. The Dow Jones Industrial Average was down 289 points, or 0.6%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 0.3% lower.
The main event for the market is coming Wednesday, when the Fed will announce
its latest decision on what it will do with interest rates. The widespread expectation is that it will hike the federal funds rate for the first time in three years to try to rein in the still-high inflation grinding on Americans.
Such a move could remove fuel that’s allowed inflation to remain above 3%. But it would do so by inflicting pain on the economy in the short term, making it more expensive for U.S. households and businesses to borrow money. Higher rates also tend to undercut prices for stocks and other investments.
Worries about high inflation, along with longstanding concerns about the U.S. government’s massive debt level and other issues, have already sent yields in the bond market to levels unseen in years.
The yield on the 10-year Treasury, which is the centerpiece of the U.S. bond market, rose to 5.00% from 4.97% late Monday. A day earlier was the first time since 2023 that it breached the 5.00% level.
“The result is a market that must work harder to generate earnings growth just as investors become less willing to pay premium valuations for that growth,” according to Darrell Cronk, president of Wells Fargo Investment Institute.
When bonds are paying more in interest, such as 5%, people are often less willing to pay high prices for stocks because they can earn more from sitting in bonds, which are considered safer investments.
Much of the recent rise in bond yields has been due to jumping oil prices, and they swung on Tuesday. The price for a barrel of Brent crude, the international standard, rose 0.7% to $106.42 after flipping between $105.10 and $108.43 earlier in the morning.
It remains well above its $72 level from early July and from before the war with Iran began in February, as doubt continues about whether the United States and Iran can reach an agreement that would allow oil tankers to freely exit the Persian Gulf through the Strait of Hormuz.
Traders are still betting on a slight chance that the Federal Reserve could hold off on hiking interest rates, though. If it does, the market could swing because investors may see it as a sign that the Fed is less committed to getting inflation lower. Fed officials will also release forecasts for where they see interest rates heading in upcoming years, providing another opportunity to inject uncertainty into the market.
On Wall Street, Nvidia and other chip companies held steadier following slides on Monday after leaders of the AI industry called for a slowdown in development to address safety issues for humanity.
Nvidia rose 1.1%, a day after its 3.4% drop was the heaviest weight on the S&P 500 index. Advanced Micro Devices climbed 2.4%.
Such stocks led the U.S. market to records for years, but they’ve come under pressure recently on worries that their prices shot too high in the frenzy around AI.
Some companies hoping to power the AI revolution also recovered some of their own sharp losses from Monday. GE Vernova gained 1% to recoup some of its 8.6% drop.
On the losing end of Wall Street was Dave & Buster’s Entertainment, which sank 7.3% after reporting weaker results for the latest quarter than analysts expected.
In stock markets abroad, indexes fell across much of Europe and Asia. But for several, the drops were not as sharp as Monday’s caused by the slide for AI stocks.
South Korea’s Kospi index, for example, fell 0.9% following Monday’s 3.3% drop.
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AP Business Writers Yuri Kageyama and Michelle Chapman contributed to this report.
