JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- October’s Consumer Price Index (CPI) outpaced expectations
- CME’s FedWatch tool swings toward two possible consecutive rate hikes
- Nvidia shares drop amid market fallout and board investigation
Another hot inflation report today took the wind out of the sails of an impressive rally with potential staying power on Monday as investors appeared to rethink what direction interest rates might take in December.
The “headline number” of the October Consumer Price Index rose 0.4%, outpacing Wall Street’s 0.3% expectation but slowing from September’s 0.6% gain. Core inflation also came in hotter than anticipated at a 0.3% increase compared with an estimate of 0.2%.
That may have spooked investors who rapidly reversed their trading course to the downside and adjusted their expectations for the Federal Reserve’s next move on interest rates. The CME’s FedWatch tool is tracking a 90.5% probability of a 25-basis-point hike to 4.0% to 4.25% in December, up from 84% on Monday and 77.4% a week ago. Probably more telling was the emergence of a 9.5% probability of a 50-basis-point hike in December, which wasn’t on anyone’s radar earlier this week or last week.
The FedWatch tool also tracked a sharp swing in the probability of another 25-basis-point hike in January, which could amount to two consecutive hikes over the next two months. The January probability climbed to 59.7% compared with 19.3% Monday and 21.3% a week ago.
Treasury yields also exerted more pressure on stocks with the 10-year treasury yield briefly rising above 5%, before settling at 4.98%. Higher yields combined with potentially higher interest rates might motivate investors to turn to bonds over stocks because of a more competitive risk-reward calculation. Higher yields increase borrowing costs for businesses and consumers, and lower stock valuations.
Artificial intelligence (AI) stocks of all stripes and colors lost their Monday mojo and pulled all three major indices lower. The Nasdaq Composite and the S&P 500 Index fell into the red after three sessions of advances, finishing down 0.74% and 0.38%, respectively, but recovering from intraday lows. The Dow Jones Industrial Average gave back 0.30%.
Nvidia shares were among the market’s worst performers, losing 5.53% as the chipmaker’s pullback reflected broader pressure across the tech sector as well as the company-specific scandal surrounding Chief Executive Jensen Huang. Analysts are weighing in on Huang’s future as well as Nvidia’s, but there’s little consensus on how the board may lean as it investigates allegations that his mistress —or as they say in global intelligence circles, his “honey pot” — was a Chinese spy. He has admitted to the extramarital affair but has said he had no knowledge she might be a spy.
This can be a tricky issue for Nvidia, dependent on what the investigation uncovers. Huang is widely regarded as the “godfather of the AI economy” because he pioneered Nvidia’s graphic processing unit (GPU) development, which has helped power the AI boom. Nvidia commands more than 80% of the AI chip market, according to industry research estimates. Huang’s influence across the company is said to be deep, with more than 60 direct reports.
That level of strategic and operational direction creates what analysts call a “key-person risk” – the possibility that losing that person could upend the company’s strategy and competitive position. Analysts have long questioned who might be capable of succeeding Huang.
As much as the board may like him both personally and as a leader, it still must consider Nvidia’s future and credibility without him. We’re often told that no one is indispensable. Everyone thought Apple could not survive without Steve Jobs and it thrived. The question for Nvidia going forward will be whether its strength is resilient without Huang.
Back to the market, the selloff was much uglier earlier in the day, after the CPI numbers were released. The market did its best to fight back through the rest of trading, lending some impetus to the market’s potential resiliency to inflation. WTI Crude Oil prices fell again to $86.44, down 0.47%, on growing hopes that we’ll see more oil tankers moving through the Strait of Hormuz soon.
That might have helped the Cboe Volatility Index® (the VIX® Index), which fell 2.3% to below 20, that level of caution we keep our eyes on.
As we head into tomorrow, we will look for what effect CoreWeave earnings and comments on its conference call will have on the markets and the tech trade. The neocloud company turned in revenues above Wall Street’s expectation, raised its full-year guidance and upped the low end of its 2026 capital expenditures target to $37 billion to $39 billion. Investors initially liked the report, pushing shares higher by 7%. During the conference call, shares held on to 2.8% gains. Ahead of the earnings report, CoreWeave’s shares closed off 0.51%.
Also, the Anthropic initial public offering (IPO) road show continues tomorrow, and we will keep a close eye on how that unfolds. Anthropic kicked off the road show today, telling potential investors it is seeking to raise as much as $64.4 billion as it eyes a $1.4 trillion valuation.
On another note, market volume may be thin tomorrow as some institutions close for Veterans Day.
Please take a moment tomorrow to thank a veteran for their service to our great country!
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