0922 | AI Rally, Rate Risks and a Perilous World: Markets Head Into October

Mia: Welcome to the briefing, everyone. I'm Mia.

Milo: And I'm Milo. We've built this as an after-market wrap for U.S. equity investors — everything from the last ten hours, in order of what actually moved markets, with what changed, what's uncertain, and what to watch next.

Mia: The connective thread today is AI and risk. AI euphoria pushed the Nasdaq 100 to its first record since June, while the same technology is dragging down entire business models — and it's even forcing big institutional investors to question whether diversification still works.

Milo: So let's start on the tape. The Nasdaq 100 closed at its first record in more than three months, driven by renewed AI-investing enthusiasm. And this wasn't just a lift in AI names — traders rotated out of stocks they expect to be disrupted by the technology. That's a meaningful detail: the rally and the casualties came on the same session.

Mia: And the biggest casualty category was businesses that live off what analysts call consumer inertia — the tendency to keep buying something out of habit even when a better alternative exists. Shares of major banks, insurers and online travel agencies slid on Tuesday on fears that tools like Meta's personal AI agent, called Muse, could disrupt that habit-driven revenue.

Milo: But the same rollout created winners. Shopify and Twilio gained again on Tuesday on expected upside from Meta's Muse rollout. Meta and Shopify announced an e-commerce partnership on Monday: Meta will integrate Shop Pay into Muse so the AI agent can execute what they're calling agentic checkouts across Shopify's merchant network. So the market is splitting AI into disruptors and disrupted, and also into potential partners.

Mia: On the demand side, SpaceXAI's Grok bot topped 400,000 weekly users roughly a month after launch. It's separate from the flagship Grok chatbot and is designed to operate more like an always-on employee — an early read on demand in the AI agent market, where SpaceXAI is competing with OpenAI and Anthropic.

Milo: Strategists are trying to calm the nerves. Goldman Sachs' chief U.S. equity strategist Ben Snider says investors shouldn't be anxious, and he expects S&P 500 companies to report double-digit earnings growth starting next week. Bloomberg's framing, though, is that caution grips Wall Street after a rally that pushed stocks near all-time highs — with AI fears lingering as chip competition heats up and data-center backlash grows.

Mia: What's genuinely unknown here is how far agent-driven disruption goes, and whether next week's earnings actually validate the rally. That's the watch item: the earnings season kicking off, and any further read on Muse's real-world impact.

Milo: Which brings us neatly to a bigger structural question — if AI is making everything move together, is diversification still real? Pension funds and sovereign wealth funds, with thousands of billions under management, are discovering that the diversification they relied on for years may be largely an illusion.

Mia: The thinking is that AI appears to be creating correlated risk across portfolios — when one theme drives everything, the offsets you thought you had may not offset anything. Now, that's interpretation as much as reported fact, but it's coming from the people who actually manage these pools of money.

Milo: And it connects directly to the bond market, because investors are asking why rates are so high. A fresh analysis offers what's being called a tantalizing answer — and it's probably not about the size of the debt.

Mia: Oaktree's Howard Marks pushes the fiscal angle harder, though. He says the U.S. displays a total lack of fiscal discipline, and that efforts to push down long-term borrowing costs are unlikely to work unless the government addresses the mounting deficit.

Milo: Meanwhile, positioning is shifting. Investors in the Treasury market are moving toward shorter-dated bonds — a bet that the Fed will eventually win its fight against inflation. And on the plumbing side, New York Fed President John Williams said the shift to central clearing for Treasuries and Treasury-collateralized repos is ahead of schedule.

Mia: So the rates story is a fork: Marks says the deficit has to be fixed before long-term yields come down structurally; the short-end crowd is betting the Fed solves inflation and yields follow. What to watch is which of those views the data supports.

Milo: And the Fed itself gave us plenty today. Boston Fed President Susan Collins said she supported last week's decision to raise interest rates, and that the hike will help bring inflation back to the central bank's 2% target.

Mia: Richmond Fed President Tom Barkin added a warning: it could take time for inflationary shocks to wane, and there's a risk elevated pressures become entrenched.

Milo: In the labor market, experts see the September surge potentially boosting fall hiring, but rate-hike risk could slow it down. Treasury yields were little changed Tuesday as traders waited for more Fed commentary. So direction of travel: hikes are done for now per Collins's support, but the entrenchment risk Barkin flagged means more moves are possible. Watch for additional Fed speakers and how hiring absorbs the tighter policy.

Mia: From policy risk to geopolitical risk that's demonstrably transmitting into markets. The clearest expression came from AXIS CEO Vince Tizzio, who called the risk landscape fairly perilous — specifically marine exposure around the Strait of Hormuz and other conflict-exposed areas. His pricing for policies is up 30 to 40 percent from a year ago, with demand still high and AXIS still willing to take the risk.

Milo: Oil itself was little changed Tuesday. Prices reversed early gains amid optimism that diplomatic prospects with Iran are improving. Trump told the UN that Iran will make a deal after the midterm elections.

Mia: And there were real diplomatic signals. Iran reportedly said it can reopen the Strait of Hormuz within seven days if the U.S. eases military pressure — that report alone moved markets, with stock futures mixed and oil lower at the time. US officials also met Iranian representatives Tuesday in New York — a rare direct encounter that Trump called a very good meeting, offering a chance to restart talks to end the nearly seven-month war.

Milo: JPMorgan's commodity team basically admitted what many are thinking on Iran and oil: we just don't know where it's headed. Though they reportedly do agree on one stock — that's the exception in an otherwise uncertain commodity picture.

Mia: Two more energy threads. Trump told the UN that Russia has lost control of its diesel industry due to the Ukraine war, as he presses Kyiv for an energy truce. Russian oil flows are dipping with US sanctions and returning Saudi supplies looming — which could eat into the Kremlin's war chest.

Milo: And domestically, the big refiner rally is running into headwinds, with some Republican leaders calling to restrict diesel exports — diesel prices have soared as global conflicts limit supplies.

Mia: Geopolitics brings us straight into Trump's day at the UN General Assembly. He pledged to support AI despite calls to pace advanced models, slammed Iran and Cuba, and declared the U.S. will no longer permit threats to America to gain a foothold anywhere in the Western Hemisphere.

Milo: Altman and Amodei are expected to join a UN Security Council meeting about AI — notable that the two leading AI CEOs are being pulled into the diplomatic arena.

Mia: The reception was mixed. Brett Bruen, a former Obama administration official, said Trump came off looking desperate and that the speech wasn't diplomacy from a position of strength — and that comments about having the spoils of Venezuela fly in the face of why the UN was founded.

Milo: On the security side, the U.S. struck a deal with Greenland and Denmark for what Trump called permanent control over security, and will send forces to a Danish dogsled outpost and reopen a Cold War base. And domestically, Trump snapped at CNN at the UN — you should not be here covering me — with CNN, MS NOW and Politico suing over a White House ban, alleging First Amendment violations.

Mia: Politically, with midterms six weeks out: Democrats lead the polls, but Republicans hold a 103 million dollar cash advantage across national party committees. Also worth noting for markets: Trump disclosed more than 1,100 July trades, including sales of up to 25 million dollars each in Microsoft and Amazon — sold when the Mag 7 stocks popped on July 20th.

Mia: Ireland's foreign minister Helen McEntee, speaking at the UN, said the US will remain one of the most important trading relationships the EU has.

Milo: Now to dealmaking and the IPO pipeline, because this is where sentiment gets tested. A pair of companies delayed their IPOs, sending a ripple of anxiety through the U.S. market as investors wait for Anthropic's hotly anticipated debut to actually materialize.

Mia: Meanwhile Goldman Sachs has emerged as lead bidder to buy Palmer Square, a credit manager overseeing 37 billion dollars, as the bank revs up its dealmaking pace.

Milo: And the biggest ticket: bankers are reaching out to investors ahead of a 49 billion dollar debt sale backing Paramount Skydance's takeover of Warner Bros. Discovery — a 110 billion dollar acquisition that had been held up by lawsuits, now settled.

Mia: On the smaller end, Spanish tungsten miner Abenojar is considering a London IPO this year, driven by Europe's push to secure its own supply of the critical metal. Abu Dhabi's XRG is also exploring a stake in the Shell-led LNG Canada export project, and Canada's transportation overhaul aims to boost trade with Europe and Asia.

Milo: The open question for the pipeline: whether Anthropic's debut restores confidence, or the delays cascade.

Mia: Last stop — individual movers. Alibaba rose after rolling out what it calls China's most powerful AI chip, with plans to expand data-center capacity in the coming years.

Milo: Viking Therapeutics surged on data from its obesity drug study — VK2735 maintained up to 97 percent of weight loss versus 61 percent for placebo when subjects switched to every-other-week dosing. Leerink called the data stellar and said it strengthens the drug's competitive profile.

Mia: Netflix took a second downgrade in less than a week, with analysts concerned about a lack of big hits and competition from YouTube. Novo's CEO is defending a diversification push beyond obesity, with M&A on the table as weight-loss competition grows.

Milo: A few more quickly: On Holdings expects high-teens sales growth as it moves into golf and football. Circle landed 100 million dollars from Binance to expand USDC globally. Autonomous trucker Aurora targets positive free cash flow by 2028. Kalshi asked the CFTC to allow margin trading. Peloton is revamping its treadmills, and Newark and Philadelphia flight disruptions eased after an FAA equipment outage.

Mia: Also on traders' radar: options activity shows bets on fresh highs in a handful of names, and Nvidia options are showing an unusual dynamic ahead of two catalysts this month. Some desks are protecting big tech profits while adding non-tech exposure in what they see as an oversold market.

Milo: So the summary for investors: AI is simultaneously driving record highs and reshaping who wins and loses; the Fed's hawkish patrollers are watching for entrenched inflation; geopolitics is repricing marine risk; and the IPO window is being tested. We'll pick up the threads next time.

Mia: Thanks for listening — that's the briefing.