U.S. equities snap four-day slide as hike odds jump; AI leaders urge slower frontier-model rollout

Tide Research — U.S. stocks rebounded on Friday, breaking a four-session losing streak. The S&P 500 rose 0.86% to 7,656.98, the Dow Jones Industrial Average gained 0.98% to 52,573.29, and the Nasdaq climbed 0.96% to 26,333.04. For the week, the S&P 500 fell 0.8%, the Nasdaq slipped 0.7%, and the Dow eased 0.3%. The VIX closed at 16.89, down about 2.3%. In rates, the 10-year U.S. Treasury yield slipped to around 4.82%, while the 2-year hovered near 4.43%. Friday's bounce was supported by three developments. First, August core CPI rose 0.3% month over month, above expectations, pushing the market-implied probability of a Federal Reserve rate hike this week to nearly 90%. Second, signs of de-escalation in the Middle East helped Brent crude pull back from its $107 peak. Third, Oracle's earnings reinforced expectations for AI-driven computing demand, lifting Dell shares 12% to a record high. Early Monday in Asian trading, U.S. equity futures weakened. Nasdaq 100 futures fell 1% after three major AI players jointly called for slowing frontier-model development, and OpenAI said it would delay plans to go public. The week's key question for markets: with a rate hike increasingly treated as a near-certainty, can investors balance the AI growth narrative against tightening financial conditions? Macro: core CPI surprise hardens hike expectations August CPI was the dominant macro input last Friday. Core CPI increased 0.3% month over month, topping consensus, while the year-over-year pace held at 3.4%. Traders priced roughly a 90% chance of a hike this week. Goldman Sachs economists expect the Fed to raise rates by 25 basis points at the end of its two-day meeting on September 16. Fiscal dynamics added pressure to the long end. Over the first 11 months of the fiscal year, the federal budget deficit reached $1.97 trillion, while net interest costs surged to $1 trillion, the first time interest expense has exceeded the trillion-dollar level. With the deficit nearing $2 trillion and interest payments above $1 trillion, longer-dated Treasuries are increasingly being priced through a debt-sustainability lens, and supply pressure in the Treasury market has not eased even as hike expectations rise. White House National Economic Council Director Hassett said both Trump and he see no reason to raise rates. The split between the White House and the Fed on the rate path has become more visible, though market pricing continues to point to a hike as the base case. AI: hardware orders hold up as frontier-model pace comes into focus The AI sector saw a notable narrative shift over the weekend. OpenAI CEO Altman suggested OpenAI and other leading firms may be nearing an agreement to slow the pace of AI development to address safety risks. Anthropic CEO Dario Amodei also urged companies to proceed more cautiously and slow the speed of capability improvements. Both Musk and Altman voiced support for Amodei's call for a "global slowdown in AI." Altman added that OpenAI will not go public this year, saying he would rather scrap an IPO than pursue one if AI posed an existential threat. The combination of coordinated slowdown messaging and the IPO delay prompted investors to reassess the near-term trajectory of the AI trade, showing up in early Monday weakness in Nasdaq 100 futures. At the same time, the compute-hardware demand story remained resilient. Oracle's results reinforced AI computing expectations, and Dell's 12% surge to a record high on Friday continued to support the "orders" thesis across the AI server supply chain. The AI narrative is increasingly splitting into two tracks: accelerating demand for computing hardware versus a potential regulatory and self-imposed moderation in frontier-model development. Energy and geopolitics: volatility persists Weekend headlines from the Middle East sent mixed signals. A disruption involving Saudi oil infrastructure contributed to a pullback from recent highs, though prices firmed again early Monday. Reports said Yanbu Port inventories may cover only 5 to 7 days of exports; continued attacks on Saudi pipelines could translate into a roughly 4% global crude shortfall. Tensions in Yemen escalated, with Houthi forces and Saudi Arabia exchanging strikes. Iran said it is "not at war" with Saudi Arabia, language that investors read as leaving room for de-escalation. On Friday, oil fell from a four-month high: Brent (November) slid 2% to $103.72 a barrel and WTI (October) dropped 2% to $100.26, driven by signs of easing tensions. In early Asian trading Monday, WTI futures rose more than 2% as supply concerns resurfaced after Saudi Arabia closed a key pipeline and a meeting related to the Strait of Hormuz was postponed. The push-pull between de-escalation hopes and real-world supply disruptions continues to keep energy pricing unstable. Other markets Spot gold fell 0.51% to $4,399.20 per ounce. Bitcoin traded around $78,342, up 0.26% over 24 hours, while Ethereum was around $2,478, up 0.62%. This week's focus 1) Fed September FOMC meeting (September 16–17): With hike odds near 90% and largely priced, the key swing factor is forward guidance. A dot plot implying a second hike this year could push long-term yields higher; more dovish language could offer relief. The White House's public opposition to a hike adds scrutiny around the meeting's independence narrative. 2) Follow-through from the AI leaders' slowdown call: Joint appeals to slow frontier-model development are rare, and it remains unclear whether this will translate into a real change in R&D cadence or new regulatory frameworks. A genuine slowdown could prompt near-term revisions to compute-demand expectations; if largely rhetorical, markets may quickly revert to order-driven positioning. 3) Treasury supply and the "debt spiral" debate: With the deficit approaching $2 trillion and interest expense above $1 trillion, long-dated Treasuries are increasingly trading on fiscal sustainability. After this week's hike, whether long-term yields can stabilize will be pivotal for the valuation anchor of high-multiple assets.