Wall Street may be getting temporary relief from easing geopolitical tensions in the Middle East, but ETF investors are increasingly signaling that the real threat to the AI trade is coming from the bond market.
U.S. stocks fell Tuesday even after President Donald Trump said he had paused plans for renewed attacks on Iran and suggested there was a "very good chance" of reaching a nuclear deal with Tehran. Instead of rallying on de-escalation hopes, markets focused on surging Treasury yields, with the benchmark 10-year yield climbing toward 4.7% — its highest level in more than a year.
Something went wrong.
That shift in focus hit growth-heavy indexes hardest. The tech-heavy Nasdaq declined nearly 1%. The Invesco QQQ Trust (NASDAQ:QQQ) fell nearly 1% before rebounding on Tuesday. Meanwhile, semiconductor and AI-linked ETFs like VanEck Semiconductor ETF (NASDAQ:SMH) and iShares Semiconductor ETF (NASDAQ:SOXX) also came under pressure, falling more than 2% each in the morning before stabilizing. These swings came ahead of Nvidia Corp's earnings report set to be out on Wednesday.
The move highlights a growing concern across markets: AI enthusiasm may be colliding with a higher-for-longer rate environment.
