Stocks Decline as Rising Oil Prices Pressure Market

Stocks slipped on Wall Street Friday, with the S&P 500 falling 0.3% and the Dow Jones Industrial Average dropping 541 points, or 1%. The Nasdaq composite, however, rose 0.1%, aided by gains in several large technology companies.

The market faced pressure from rising oil prices, which saw Brent crude oil climb 3.6% to $117.20 per barrel. This marks a surge from under $97 at the beginning of October and the highest price since March. The surge in oil prices contributed to a broad market decline, with three out of every four stocks in the S&P 500 index falling.

Despite the overall downturn, several artificial intelligence-related companies saw significant gains. Micron Technology jumped 3.6%, Microsoft rose 0.8%, and Advanced Micro Devices increased by 2.3%, helping to temper losses in the broader indexes.

However, investors are increasingly scrutinizing the economics of AI, particularly the substantial upfront costs and uncertain timelines for returns on investments. This concern, coupled with rising interest rates making borrowing more expensive for AI-focused companies, has led to volatility in the tech sector.

“Investors appear increasingly focused on the economics of AI, particularly the substantial upfront costs required to build AI infrastructure and the uncertainty around the timing of returns on those investments,” said Angelo Kourkafas, senior global strategist at Edward Jones.

Investors are closely watching upcoming corporate earnings reports from influential AI-related companies, including Alphabet, Microsoft, and Amazon, to gauge the payoff of AI investments.

Industrial companies experienced some of the most significant losses, with Caterpillar slumping 2.2%. Financial companies also declined, with American Express falling 3.6% despite reporting profits that exceeded analysts' forecasts. The company did, however, announce its first major job cuts in about a decade.

Energy companies were a notable exception to the market's decline, with Chevron rising 2.9% and ConocoPhillips climbing 4.6%.

European markets were also lower, with France's main index falling 0.4%.

In U.S. Treasury markets, yields edged higher after sharp drops on Thursday, with the 10-year Treasury yield rising to 4.99% from 4.96%.

Global yields have been rising, partly due to concerns about government debt levels and persistent inflation, which remains well above the Federal Reserve's 2% target. The Federal Reserve raised its benchmark interest rate at its last meeting to combat inflation and is widely expected to hold rates steady at its upcoming meeting. However, there is a strong expectation for another rate hike in December.

Next week, the U.S. will receive key economic data, including the personal consumption expenditures (PCE) index, which is the Fed's preferred measure of inflation. The PCE is anticipated to show a 3.6% rise in September, significantly above the Fed's target.

The global oil supply has been impacted by geopolitical events, contributing to higher energy prices and subsequent increases in the cost of goods like gasoline, food, and clothing.