Tech Faces a Rates Test as $102 Oil, Rising Yields and Earnings Put AI Leadership in Focus

U.S. equity futures are mixed Thursday morning as investors weigh another rise in oil and Treasury yields against a corporate earnings backdrop that continues to show strength in several important areas of the economy. The pressure is concentrated in technology, setting up another test of whether the powerful artificial intelligence trade can withstand increasingly restrictive financial conditions.

S&P 500 futures are down 2 points, or 0.03%, while Dow futures are higher by 83 points, or 0.16%. Nasdaq futures are down 145 points, or 0.50%, and Russell 2000 futures are lower by 2 points, or 0.05%.

The divergence is notable. The market isn't experiencing broad risk-off selling, but investors are again trimming exposure to long-duration growth stocks as Treasury yields rise. The 10-year yield is up 3 basis points to 4.87%, pushing beyond the important 4.85% area, while the 30-year has recently traded around 5.30%. Treasury's decision Wednesday to increase its long-duration buyback to as much as $6 billion failed to provide relief because some investors had positioned for an even larger intervention.

Oil is adding another complication. WTI crude is up 1.44% at $97.43, while Brent has advanced 1.20% to $102.42. The Dollar Index is slightly higher at 98.90, Bitcoin is down 0.46% at $78,010 and the VIX remains elevated at 16.40.

Geopolitical risk remains firmly in the background. The Iran conflict continues to threaten energy supplies, while reports suggest some U.S. officials are considering the possibility that the conflict could persist much longer than initially anticipated.

Europe Slips Ahead of ECB Decision

European equities are modestly lower, with the major eurozone averages down roughly 0.2%. Autos, insurance, telecom, energy and utilities are outperforming, while technology, consumer staples and chemicals lag. Ferrari and Mercedes are helping lift the auto group, while weakness in ASML and SAP is weighing on technology.

The primary catalyst is the European Central Bank's policy decision. The ECB is widely expected to raise its key rate again as policymakers confront renewed inflation pressure caused partly by higher energy prices.

Eurozone inflation reached 3.3% in August, its highest level in nearly three years. Brent's move above $100 and elevated European natural-gas prices complicate the inflation outlook and could force policymakers to maintain a more restrictive stance than markets had anticipated earlier this year.

The ECB's guidance also matters for U.S. investors because Federal Reserve Chairman Kevin Warsh has reduced the Fed's reliance on forward guidance, leaving markets increasingly dependent on incoming economic data.

Asia Mostly Lower as Japan Outperforms

Asian markets were predominantly weaker overnight. Japan's TOPIX and Nikkei each gained approximately 0.2%, but Hong Kong's Hang Seng declined 1.27%, the HSCEI lost 1.13%, Shanghai fell 0.43% and Shenzhen dropped 0.95%.

Taiwan declined 0.51%, South Korea fell 0.25% and Australia's ASX 200 lost 1.03%, while India was approximately unchanged.

Japanese monetary policy remains a focus after a Bank of Japan official called for higher rates, reinforcing expectations for additional tightening. China, meanwhile, reportedly purchased approximately 1 million tons of U.S. soybeans ahead of an expected Trump-Xi summit, providing a modestly constructive signal for trade relations.

Earnings and Corporate News Take Center Stage

Taiwan Semiconductor Manufacturing Company (TSM) reported record August revenue, providing another strong confirmation that AI infrastructure and data-center demand remain robust. Shares nevertheless traded modestly lower before the open as rising Treasury yields pressured semiconductor valuations broadly. Intel, Marvell Technology, Micron Technology and Sandisk were also under pressure.

Cooper Companies (COO) is experiencing a much more dramatic reaction, with shares tumbling roughly 15% premarket. Revenue missed expectations, management reduced full-year adjusted EPS guidance to $4.51–$4.55 from $4.58–$4.66, and the company abandoned plans to sell CooperSurgical following a strategic review. Inventory reductions at CooperVision also weighed on results and are expected to remain a headwind during the fourth quarter.

AeroVironment (AVAV) delivered a stronger report. Fiscal first-quarter EPS reached $0.59 versus $0.51 expected, while revenue increased 6% to $480.5 million versus $456 million expected. Gross margin reached approximately 26%, comfortably above the Street's 23.7% estimate, while book-to-bill was a healthy 1.4x and backlog increased 37% from a year ago. Management, however, merely reiterated guidance, limiting some of the enthusiasm despite continued strength in drone and defense demand.

Apple Inc. (AAPL) is also in focus following Wednesday's product event. Apple unveiled its first foldable iPhone, the iPhone Duo, starting at $1,999, alongside the iPhone 18 Pro at $1,199 and Pro Max at $1,299. Apple shares traded largely between $311 and $318 during the event before recovering toward the session highs.

The market now turns toward Apple's late-October earnings report, where holiday-quarter guidance and gross margins will be critical. Higher Pro pricing could offset rising memory costs, while investors will want evidence that the expensive new Duo can increase average selling prices without compromising profitability.

Inflation and Earnings Provide the Next Tests

Thursday's calendar provides several significant catalysts.

The ECB decision arrives at 8:15 a.m. ET, followed by August Producer Price Index data and weekly jobless claims at 8:30 a.m. Existing-home sales and wholesale data arrive at 10 a.m.

PPI will serve as the warm-up for Friday's much more important CPI report. Markets currently assign roughly a 60% probability to a Federal Reserve rate increase on September 16, making the next two inflation reports potentially decisive.

Earnings return to center stage after the close with Adobe Inc. (ADBE), Oracle Corporation (ORCL) and RH (RH) reporting.

Oracle Corporation (ORCL) may be the most important report for the broader AI trade. Investors will be watching OCI growth, AI infrastructure demand, backlog conversion, capacity expansion and the enormous financing requirements associated with the company's data-center buildout. Adobe Inc. (ADBE), meanwhile, offers another important test of whether software companies can translate AI adoption into accelerating revenue growth.

AI Fundamentals Meet the Bond Market

The market continues to revolve around three competing forces: AI earnings, oil and Treasury yields.

On the fundamental side, the AI story remains remarkably strong. Taiwan Semiconductor Manufacturing Company (TSM)'s record August revenue adds to bullish commentary coming from technology companies at this week's investor conferences. AI infrastructure and semiconductor demand continue to provide one of the strongest sources of earnings growth in the market.

The problem is valuation.

A 10-year Treasury yield approaching 4.90% raises the discount rate applied to future earnings, creating an increasingly difficult backdrop for high-multiple technology stocks. At the same time, Brent above $102 threatens to push inflation higher and complicate the Fed's policy decision.

That leaves investors with a fascinating tug-of-war. Corporate fundamentals—particularly across AI infrastructure—remain strong, but the macro hurdle is rising.

With PPI today, CPI Friday and earnings from Oracle Corporation (ORCL) and Adobe Inc. (ADBE) tonight, the next 36 hours should help determine whether strong earnings can continue overpowering $100 oil and a bond market that increasingly appears determined to test the equity rally.