The market closed out the week on a down note, with major indices unable to shake off last week’s losses despite a Friday rally. Surging oil prices and rising bond yields have reignited concerns over inflation and the Federal Reserve’s next move, overshadowing any optimism.
The Dow Jones Industrial Average, S&P 500, and Nasdaq all saw nearly 1% gains on Friday, helping to pare back weekly declines. However, this wasn’t enough to turn the tide. The Dow ended the holiday-shortened week down 1.6%, its steepest fall. The S&P 500 shed 0.8%, and the Nasdaq declined 0.7%.
The geopolitical landscape played a significant role, with escalating tensions between the U.S. and Iran pushing West Texas Intermediate crude above $100 per barrel for the first time in nearly four months on Thursday. Despite a slight retreat on Friday, WTI still posted a more than 9% gain for the week.
Simultaneously, the yield on the 10-year Treasury note surged past 4.95% on Thursday, reaching its highest level since October 2023. Bond yields, which also saw a breather on Friday, have been moving in tandem with rising crude prices. The concern is that elevated energy costs could fuel persistent inflation, potentially forcing the Federal Reserve to consider another interest rate hike at its upcoming meeting.
Despite the broader market headwinds, there were bright spots, particularly from technology giants Meta Platforms and Apple, offering compelling reasons for long-term optimism centered on their artificial intelligence ambitions.
**Fed’s Next Move: Rate Hike Prospects Firm Up**
Last week’s inflation data did little to assuage fears of an imminent Federal Reserve rate increase. The producer price index rose 0.4% for the month, meeting expectations. Friday’s consumer price index echoed this trend, with headline inflation climbing 0.4% month-over-month and 3.4% year-over-year. Core CPI, which excludes volatile food and energy prices, saw a 0.3% increase from the previous month, slightly surpassing forecasts.
These figures represent the final significant inflation indicators the Fed will review before its September 15-16 policy meeting. Market sentiment has shifted dramatically, with the probability of a September rate hike climbing to 87% according to the CME FedWatch tool, a stark increase from 58% the prior week. The possibility of a second rate hike before the end of the year is also increasingly being factored into market expectations.
**Meta’s AI Prowess Challenges Valuation**
Meta Platforms’ recent artificial intelligence advancements are beginning to cast a new light on the stock’s currently modest valuation. The company’s Muse Spark 1.3 model, released earlier this month, has quickly established itself as a formidable competitor to leading frontier AI models from OpenAI and Anthropic. Building on this momentum, Meta last week unveiled its Muse personal AI agent, designed to seamlessly integrate with its vast social media ecosystem – Facebook, Instagram, and WhatsApp – which collectively boast 3.6 billion daily active users.
These developments bolster the argument that Meta’s substantial investments in AI are yielding valuable assets with strong monetization potential. Despite this, the market appears to have yet to fully price in this potential. Meta currently trades at approximately 19 times its 2027 earnings estimates, even as its core Family of Apps business is projected to experience robust revenue growth of 20%. Furthermore, Meta’s extensive computing infrastructure provides significant strategic optionality, whether for internal use or the potential to monetize excess capacity through a public cloud offering, a strategy favored by market observers. This strategic positioning has cemented Meta as a top pick among the “Magnificent Seven” group of tech stocks. Investors are advised to consider building a position in Meta, with the stock currently holding a buy-equivalent rating. Meta shares saw a 5% gain last week.
**Apple’s Foldable Debut and AI Integration**
Apple’s unveiling of its foldable iPhone last Wednesday injected a palpable sense of excitement into the market, characterized by a significant “wow factor.” The iPhone Duo, starting at $1,999, introduces a new form factor for Apple’s flagship device, moving beyond incremental upgrades. Alongside this, the new iPhone 18 Pro and Pro Max models feature expected hardware enhancements coupled with a $100 price increase. This price adjustment is anticipated to offset rising memory costs without materially impacting consumer demand. Apple shares experienced a nearly 4% rise over the week.
However, the more profound long-term development may lie in Apple’s aggressive push into artificial intelligence. The company’s new CEO, John Ternus, positioned the iPhone as an “intelligent personal hub,” highlighting an AI-enhanced Siri capable of interacting with over 300,000 apps. This strategic move places Apple directly into the burgeoning competition for personal AI agents, alongside offerings from Meta’s Muse and SpaceX’s Grok Bot. The emerging personal AI agent market is unlikely to be a winner-take-all scenario; consumers may well adopt multiple agents for distinct tasks. Apple’s distinct advantage lies in its ability to deeply embed AI capabilities within a device already indispensable to hundreds of millions of users’ daily routines.
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