U.S. equities closed a volatile week lower despite a Friday rally, as surging oil prices and rising bond yields reignited inflation concerns and hardened bets on a Federal Reserve rate hike at next week's FOMC meeting. The Dow Jones Industrial Average led declines for the week, falling 1.6%, while the S&P 500 and Nasdaq dropped 0.8% and 0.7% respectively, according to CNBC. All three indexes still managed roughly 1% gains in Friday's session as crude oil and yields eased off their weekly highs.

Oil and yields spike together

Escalating tensions between the U.S. and Iran sent West Texas Intermediate crude above $100 a barrel on Thursday for the first time in nearly four months, with WTI still up more than 9% for the week even after Friday's pullback. The 10-year Treasury yield topped 4.95% on Thursday, its highest level since October 2023, moving in lockstep with crude on fears that elevated energy costs would keep inflation — and the Fed's hand on the rate lever — elevated for longer.

The market-implied odds of a September Fed rate hike, per the CME FedWatch tool, jumped to 87% during the week, up sharply from 58% just seven days earlier, with a second hike before year-end increasingly in the conversation.

Meta and Apple provide an AI counterweight

Not all the week's news was negative for tech. Meta's newly launched Muse Spark 1.3 model and its Muse personal AI agent — which integrates across Facebook, Instagram and WhatsApp's combined 3.6 billion daily active users — drew bullish commentary from analysts who argue the stock's AI investments remain underpriced at roughly 19 times 2027 earnings estimates. Meta shares gained 5% on the week.

Apple, meanwhile, unveiled its first foldable iPhone, the iPhone Duo, starting at $1,999, alongside updated iPhone 18 Pro models with $100 price increases. New CEO John Ternus positioned the device as an "intelligent personal hub" with an AI-upgraded Siri, entering the emerging competition for personal AI agents alongside Meta's Muse. Apple shares rose nearly 4% for the week.

Market Impact: Bearish-to-Mixed for Nasdaq, Selectively Bullish for AI Leaders

The macro backdrop here — an oil-driven inflation scare colliding with a hardening Fed rate-hike path — is a genuine headwind for the Nasdaq broadly, since higher rates compress the valuation multiples that long-duration growth and tech stocks depend on, and a sustained oil shock threatens both consumer spending and corporate input costs. That's consistent with the index's 0.7% weekly decline despite Friday's bounce.

However, company-specific AI catalysts at Meta and Apple show that idiosyncratic product news can still drive meaningful outperformance even in a risk-off macro tape, echoing the same AI-capex resilience theme seen this week in TSMC's record August revenue and Oracle's cloud infrastructure beat. We'd expect continued index-level choppiness into next week's FOMC decision, with AI infrastructure and platform leaders likely to keep outperforming the broader index on a relative basis regardless of the macro headline risk.