Chip rout rattles AI trade as Fed hints at one more hike

Good morning. Wall Street slipped overnight as a chip selloff overwhelmed a decent start to bank earnings. Memory stocks fell for a second day after reports of a technical breakthrough at a Chinese memory maker, and Micron took an extra hit from Elon Musk's warning about Chinese memory. Nasdaq 100 futures were down about 0.6% before the open, and Asian chip losses pushed MSCI's Asia-Pacific index to its lowest since August.

Behind it is plain «AI fatigue». Investors are running out of patience with the pace of AI spending, and chip stocks are heading for their worst stretch in 16 months. Hyperscalers, the giant cloud companies, are on track to spend roughly $800 billion on capex this year, and nobody can say for sure that it pays off. A fund-manager survey on whether AI is a bubble came back split right down the middle.

Rates are not helping the mood. New York Fed President Williams said one more hike this year would be appropriate, and Boston's Collins said another increase before year-end is on the table. The 10-year Treasury yield eased to 5.19% as oil pulled back and tech wobbled, but traders are holding their breath for September CPI, due tonight.

Big banks didn't lift spirits either. JPMorgan, Citi and Wells Fargo posted record lending income, yet investors worry that higher rates could eventually spoil the party. The Dow was up more than 300 points early on, then gave it back as chips sank and closed slightly lower.