Oil and yields slow stocks as Alphabet AI chip report lifts shares

Stocks edged higher Monday, but the rally faded as two pressures investors know well, oil and interest rates, kept the market from holding its best levels. For everyday investors, that matters because higher energy costs can feed inflation, and higher bond yields can make stocks look less attractive by comparison.

The CNBC Investing Club with Jim Cramer reported that the S&P 500 and the Nasdaq Composite were trading above Friday’s close in the afternoon, though both indexes had pulled back from their session highs. The move came as traders weighed whether the recent pullback in artificial intelligence stocks had run far enough or whether more volatility could follow.

Oil was one of the main drags. West Texas Intermediate crude, the U.S. benchmark oil price, traded near $83 a barrel during Monday’s session after briefly falling to about $80 earlier in the day, according to the CNBC Investing Club. When oil rises, it can lift costs for transportation, manufacturing and consumers, which can make inflation harder to cool.

Bond yields added another headwind. The 10-year Treasury yield rose back to roughly 4.6%, the CNBC Investing Club said. A Treasury yield is the return investors demand to lend money to the U.S. government. When that return rises, investors often apply more pressure to stock valuations, especially for growth companies whose profits are expected further in the future.

The Investing Club also said expectations for possible Federal Reserve rate increases moved higher as energy prices raised concern about inflation. A rate-hike probability is the market’s implied estimate that the Fed will raise borrowing costs. Higher rates can slow spending and investment, which is why stocks often react when those odds shift.

Alphabet was a bright spot after The Information reported that Google is developing a new server chip meant to run its Gemini artificial intelligence models more efficiently. The chip project is called Frozen v2, according to The Information.

The reported chip is not expected to be used until 2028 and is not intended to replace Google’s tensor processing units, or TPUs, the CNBC Investing Club said. TPUs are custom chips designed for AI workloads and are co-designed with Broadcom, according to the club.

The Information reported that Frozen v2 is designed to improve the number of tokens generated per unit of power. Tokens are small chunks of data that AI models process when they read prompts and produce responses. Better token output per watt can matter because running large AI models requires costly computing power and electricity.

The CNBC Investing Club said the report points to Google’s work on its own chips, which can lower costs and reduce dependence on outside AI accelerators such as Nvidia’s. Alphabet has faced investor concerns tied to the loss of prominent AI employees and a delay of its most powerful new AI model, the club said. The reported chip project suggests Alphabet is still spending on longer-term AI infrastructure.

No major earnings reports were scheduled after Monday’s closing bell, according to the CNBC Investing Club. Before Tuesday’s open, companies expected to report included 3M, Danaher, Halliburton, Charles Schwab, General Motors, Novartis and Northrop Grumman.

Capital One was scheduled to report Tuesday evening, the club said. The Investing Club described that report as a chance for the credit card company to make its case for its $35 billion Discover deal. No major economic reports were scheduled for Tuesday, according to the club.

This story draws on original reporting from CNBC.