U.S. stock markets experienced a mixed session on Monday, with the S&P 500 and Dow Jones Industrial Average eking out modest gains, while the Nasdaq Composite slid as rising Treasury yields continued to pressure high-growth technology shares. The divergence underscored a market grappling with competing narratives—optimism around artificial intelligence-driven chip demand and caution over persistent inflation and monetary policy uncertainty.
The S&P 500 rose 0.11% to 7,508.57, the Dow gained 0.42% to 51,779.48, and the Nasdaq fell 0.40% to 26,410.98. The moves came as investors weighed softer oil prices, a pickup in bond yields, and renewed interest in semiconductor stocks ahead of key earnings.
Micron Leads Chip Rally Ahead of Earnings
Micron Technology (NASDAQ:MU) surged nearly 5% in anticipation of its quarterly results due Wednesday, which are widely viewed as a critical barometer for demand for memory chips used in artificial intelligence systems. The Philadelphia Semiconductor Index (.SOX) reached a new record high earlier in the session, reflecting the broader enthusiasm for chipmakers. Micron shares have rallied nearly 300% year-to-date, outpacing even Nvidia (NASDAQ:NVDA) in percentage terms, as investors bet on AI-driven demand for memory and storage solutions.
However, the broader tech sector faced headwinds. Alphabet (NASDAQ:GOOGL) dropped 5.6%, Microsoft (NASDAQ:MSFT) fell 1.4%, and Nvidia lost 0.6%, as higher yields reduced the present value of future earnings for these mega-cap names. The 10-year Treasury yield rose to 4.485%, continuing its upward trajectory and weighing on rate-sensitive growth stocks.
Oil Prices Slide on Iran Talks, But Yields Keep Climbing
Brent crude oil fell 2.94% to $78.20 per barrel, dipping below $79 as progress in U.S.-Iran talks raised hopes for increased supply. Despite the decline in oil, Treasury yields saw no relief, with the 10-year note yield climbing to its highest level in weeks. The rise in yields reflects ongoing concerns about inflation and the Federal Reserve's next moves, with traders pricing in a higher probability of rate hikes later this year.
Bank of America and Deutsche Bank now see a rate hike from the Fed in September, with Deutsche Bank flagging a potential move as early as July. The personal consumption expenditures data due Thursday will be closely watched as the Fed's preferred inflation gauge.
Market Breadth Positive Despite Nasdaq Decline
Under the surface, market breadth was encouraging. Seven of the 11 major S&P 500 sectors traded in positive territory, with financials leading the gains. More stocks rose than fell on both the NYSE and Nasdaq, indicating that the weakness was concentrated in a few heavily weighted names. The Dow's price-weighted methodology also contributed to its relative strength, with Caterpillar (NYSE:CAT) and Visa (NYSE:V) accounting for about a third of the index's intraday gain.
Communication services were the weakest sector, dragged lower by Alphabet and SpaceX, while healthcare stocks benefited from deal news. AbbVie (NYSE:ABBV) gained 5.5% after announcing a $10.9 billion cash acquisition of Apogee Therapeutics (NASDAQ:APGE), which soared 46.8%. The deal is among the largest biotech acquisitions this year, highlighting big pharma's continued investment in drug pipelines.
Outlook: Inflation and AI Trade Under Scrutiny
Investors remain cautious as the geopolitical backdrop remains fluid and inflation risks persist. Dan Coatsworth, head of markets at AJ Bell, noted that markets have held up but traders are pricing out some war risk in oil while bond markets still reflect inflation concerns. The combination of easing geopolitical tensions and robust AI-driven spending has supported markets, but a hotter-than-expected inflation print or a stall in Iran talks could trigger a selloff in both chip stocks and broader equities.
With Micron's earnings and the PCE data on the horizon, the market is poised for potential volatility. The coming days will test whether the AI trade can sustain its momentum and whether the Fed's next move will be a hike or a hold.
