AI bets push US stocks to records despite $100 oil and rising yields

Oil above $100 a barrel and a 10-year US government bond yield above 5 percent have not stopped Wall Street from setting records. Investors are betting that the billions flowing into artificial intelligence will pay off, lifting US stocks even as energy costs and interest rates present a growing challenge, according to Al Jazeera.

The S&P 500, a benchmark for large US companies, climbed 0.58 percent on Tuesday to close above its previous record from mid-August. The technology-heavy Nasdaq Composite also reached a new closing high, gaining 0.45 percent. The advances brought the S&P 500’s rise this year to 14 percent and the Nasdaq’s to 18.78 percent. The US market remains on course for a fourth straight year of double-digit returns.

A rally with a narrow engine

Technology companies again supplied much of the momentum. Amazon rose 1.95 percent, Microsoft gained 0.78 percent and Tesla added 0.51 percent. Apple and Alphabet each advanced 0.22 percent, while Nvidia edged up 0.14 percent. Meta was the only member of the “Magnificent Seven”, the group of major technology stocks, to fall. It slipped 0.41 percent after gaining more than 20 percent since launching its Muse AI assistant last month. Elsewhere in technology, Marvell Technology jumped 5.81 percent and Cisco rose 4.54 percent.

Keith Lerner, chief investment officer and chief market strategist at Truist Advisory Services, told Al Jazeera that technology and AI best explained the rally. The strength has not spread evenly across the market: technology and communication services were the only two of the S&P 500’s 11 sectors to advance last month. The other nine declined.

“Every bull market has a dominant theme, and technology and AI remain this market’s dominant theme,” Lerner told Al Jazeera.

For investors, the central wager is that spending on data centres—the facilities that house computing equipment—will generate worthwhile returns. Lochlan Halloway, senior equity strategist at Morningstar Australia, told Al Jazeera that this confidence has so far outweighed more expensive oil, rising interest rates and a 10-year government bond yield above 5 percent. Bond yields measure the return available to buyers at current prices.

Halloway said Morningstar was also positive about AI, but stressed that possible outcomes vary widely. With the market heavily concentrated in a small number of companies, the outlook for US shares, and therefore global shares, depends on AI continuing to deliver. That leaves investors relying on a narrow group of businesses while the wider economy faces an energy crunch linked to the US-Israel war on Iran and a government bond sell-off partly driven by mounting debt.

Rates and oil test the momentum

Lerner said strong expected company earnings and historical patterns could support further gains through the end of 2026, though not without setbacks. Since 1950, the fourth quarter of US midterm-election years has delivered an average gain of 7 percent and been positive 84 percent of the time, he said. Rising interest rates remained the biggest threat in his assessment.

Asian markets offered a weaker picture on Wednesday. At 02:30 GMT, Japan’s Nikkei 225 was down 0.79 percent, South Korea’s Kospi had fallen 1.36 percent and Hong Kong’s Hang Seng had lost 0.71 percent. Brent crude contracts for December delivery rose 0.87 percent to $101.45 a barrel as traders assessed fighting between forces aligned with Yemen’s internationally recognised government and the Iran-aligned Houthis. The next test for the US rally is whether company earnings and AI returns can keep outweighing pressure from rates and oil.