What’s News in Markets: CoreWeave Selloff, Apple Milestone, Borrowing Boom

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Hey, listeners. It's Saturday, October 17th. I'm Imani Moise for The Wall Street Journal, and this is What's News in Markets, our look at the biggest stock moves of the week and news that drove them. Let's dive in.

The bull market turned four years old this week. Happy birthday. Very cute age. But fears of higher interest rates crashed the party. As of Monday, the S&P 500 had more than doubled since October 12th, 2022, marking the longest run for stocks since the rally that followed the 2008 crisis and ended in 2020 Remember that pandemic thing? But by Wednesday, investors weren't celebrating. Inflation came in hotter than economists expected, adding to bets that the Federal Reserve could raise interest rates again this month. And those worries spilled over into the AI trade, where companies have been borrowing heavily to drive growth.

All those forces collided this week, leading the S&P 500 and NASDAQ to have their worst single day performance since July.

Investors fleeing the stock market found refuge in bonds. The benchmark 10-year Treasury yield notched its biggest weekly decline since February, as investors piled in. The NASDAQ led the declines, falling about 4.5% for the week. The S&P 500 lost just under 2%.

And the Dow bucked the trend, eking out a 0.7% gain.

CoreWeave has become a weathervane for one of the riskiest corners of the AI trade. And this week, it weathered our tornado, making it our laggard of the week. Shares plunged more than 25% this week, as investors grew increasingly nervous about the mountain of debt supporting the AI boom. That's particularly bad news for CoreWeave. The former crypto-mining company now rents out powerful computer chips to AI developers. But building that infrastructure is expensive, and CoreWeave has racked up at least $35 billion in debt to finance its growth. And it's projected to burn through around $80 billion of cash over the next three and a half years, at least according to one analysis. One of its biggest backers, NVIDIA, came to its defense Thursday. CEO Jensen Huang said CoreWeave's strength was improving every day. But Wall Street is getting more selective about which AI companies it's willing to finance. The anxiety spread across the AI trade with the most heavily indebted AI companies leading the sell-off. Shares and rival infrastructure companies, Nebius and Iren, also tumbled, falling 25 and 23 percent respectively.

Our leader of the week is Apple, which finally joined the exclusive $5 trillion club. Apple had flirted with a $5 trillion market value six times since July, but couldn't hold on to the milestone through the closing bell. That changed Wednesday, when it became just the second company ever, after NVIDIA, to close above that threshold. Overall, the iPhone maker's shares rose more than 2 percent this week, standing out against a broader tech sell-off to reach that record high. One reason investors are excited about Apple right now? It's new $2,000 foldable phone. Pre-orders for the iPhone Duo opened Friday, and early demand appears strong. Barron's is reporting that delivery dates for the Duo are already stretching into late January. That's raising hopes that Apple's expensive new device could help revive sales, particularly after signs that consumers weren't necessarily rushing to get their hands on new models. Analysts noticed shorter wait times for the iPhone 18 Pro.

And finally, our number of the week is $188 billion.

That's how much investors owed Charles Schwab at the end of September, through what's called margin loans. And those balances are nearly double the amount from a year ago. Margin loans let investors borrow against stocks and other investments they already own, boosting potential upside, but also magnifying potential losses. The borrowing binge is being fueled by one strategy in particular. It's called long short tax aware investing. Here's how it works. Investors borrow money to buy stocks they expect to rise and bet against stocks they expect to fall. This creates opportunities to realize losses that offset taxable gains. While the strategy can generate savings for clients, its rapid growth creates risks for brokerages like Schwab, which carry the loans on their balance sheets. The surge prompted the company to, quote, throttle growth by raising the minimum investment for some new accounts from $1 million to $10 million. Rival Fidelity has stopped opening new accounts altogether. But Schwab is already developing its own version of the strategy that's easier to manage because it doesn't see demand slowing. As Schwab CEO put it, saving money on taxes is something clients love to do.