Wall Street's 'AI Rally' Stalls Amid Rising Rates and Oil Prices

US Treasury yields continued their rapid rise, putting New York markets in the red for a third consecutive day. On May 19 (local time), the S&P 500 fell 0.67%, the Nasdaq declined 0.84%, and the Dow dropped 0.65%. The 10-year Treasury yield topped 4.6%, and the 30-year yield climbed above 5.1%, reaching its highest level in 19 years and increasing valuation pressure on growth stocks.

With inflation still exceeding the Fed’s 2% target—and oil prices swinging above $100 per barrel amid tensions from the Iran conflict and a blockade of the Strait of Hormuz—inflation concerns have intensified. Market participants now broadly expect a prolonged period of high rates, anticipating that the Fed will hold its policy rate at 3.5–3.75% for an extended stretch and may even hike further if necessary.

By sector, semiconductor and large-cap technology shares led the downturn ahead of Nvidia’s earnings report on May 20. Profit-taking and position trimming in Nvidia, AMD, and memory and equipment stocks—sectors that had rallied on AI optimism—deepened the Nasdaq’s pullback.

On the positive side, Home Depot beat market forecasts, indicating that consumer and housing demand has not collapsed, and certain defensive stocks helped limit losses. Nonetheless, as long as war risks around the Strait of Hormuz and oil price volatility persist, the interaction between rising bond yields and tech-stock swings is likely to remain the principal driver of U.S. equity market movements in the near term.