Investors Keep Risk-Off Mood Amid AI Spending Concerns And Soaring Middle East Tensions. Stocks Fell Again.

Stocks fell again on Friday as investors remain in a risk-off mood over concerns related to AI spending and soaring tensions in the Middle East.

The tech-heavy Nasdaq Composite fell 0.21%, while the S&P 500 did so 0.52%. The Dow Jones Industrial Average underperformed, dropping 1.24% as the sell-off broadened and impacted companies outside the tech world.

The benchmark 10-year Treasury yield fell below 5% during the session as investors sought safer havens.

The shift marked a reversal from earlier this month, when yields on 10-year and 30-year government debt climbed to their highest levels in more than two decades. Investors are now weighing mounting risks in the AI trade against persistent inflation pressures that could keep interest rates elevated.

The Fed meets next week, with markets expecting policymakers to leave their benchmark rate unchanged at 3.75% to 4.00%. However, traders were pricing in approximately a 70% probability of a quarter-point increase in December.

Friday's economic reports offered little reassurance that inflation pressures were fading. The University of Michigan's final October consumer sentiment index registered 48, barely changed from September but down 10.4% from a year earlier. Consumers' expectations for inflation over the next year rose to 4.7%, while their five-year outlook increased to 3.5%.

Meanwhile, S&P Global's manufacturing purchasing managers index reached 56, exceeding the 55.3 forecast and marking its highest reading in 53 months. Energy markets added another complication. December West Texas Intermediate futures climbed nearly 3% to $102.39 a barrel Friday, while Brent crude rose approximately 2.5% to $115.94.

In the geopolitical world, tensions are running high as the last weekend before the Israeli midterms looms. As rhetoric ramps up, Iran is considering targeting undersea communication cables in the Gulf if hostilities resume, according to a new report.

Citing people familiar with the matter, Reuters detailed that attacks would also seek to prevent repairs to extend the damage to communications.

Yadollah ​Javani, the deputy head of political affairs for Iran's Revolutionary Guard Corps, had said earlier this week that Tehran could target seven major cables in the Strait of Hormuz.

Officials have warned in private and public and it will not only target U.S. bases and warships, but also airports, pipelines and other infrastructure used with civilian purposes, The Wall Street Journal reported.

IRGC spokesman Hossein Mohebbi also said that it will escalate hostilities further if targeted. "If a country attacks us, we will both respond and go on the offensive," he said, noting that the previous doctrine was defensive and focused on responding to attacks, but will now be asymmetric.