JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Nasdaq recovers after AI investors take profits
- PPI report shows another sign of inflation
- Consumers are still spending, even with higher prices
Market activity throughout Thursday’s session show marks of a rotation cycle when investors unload heavy positions in one sector and flee to others considered safe havens.
The bifurcation among the three major market indices in the early going highlighted that effect as did the movement of all three to the upside as investors absorbed the day’s news. The tech-heavy Nasdaq Composite fell early as investors unloaded shares of top artificial intelligence (AI) aligned stocks toward more defensive sectors that are among the 30-stock Dow Jones Industrial Average, which moved solidly higher. At the same time, the S&P 500 Index hugged the flat line, again.
But the tables turned before the close as falling Treasury yields moved lower and some tech stocks recovered as corporate heads spoke publicly. CoreWeave, for example, ended in positive territory as it struggled to recover from Wednesday’s 15% drop after analysts and Nvidia Chief Executive Jensen Huang defended the company’s debt load.
"CoreWeave's strength is improving every day," Huang said at a Bloomberg event in Stockholm. "I'm optimistic. Their cost of capital is actually decreasing." That helped take the pressure off CoreWeave, which is heavily involved in Nvidia’s hardware, investment and strategy.
When the bell rang, all three were comfortable in positive terrain. But not without its challenges. There were a number of other factors impacting market sentiment, probably chief among them was this morning’s Producer Price Index (PPI) report, which followed yesterday’s surprising Consumer Price Index (CPI) with another sign that inflation is taking hold. The PPI moved 1.3% higher in September and posted a 6.3% increase on a year-over-year basis, representing the biggest rise since December 2022. Diesel prices were 21% higher while gasoline prices leapt 20.3% as oil shipments continue to get blocked in the Middle East.
September’s U.S. retail numbers out today were also relatively high increasing 0.8% in September, besting Wall Street’s estimate of a 0.3% rise. August’s results were adjusted higher as well to 1.3%. Prices at the pump came in 6.4% to the upside, the largest gain. These numbers are not adjusted to reflect inflation, meaning they likely suggest the higher price impact rather than more consumption. But they also represent that consumer spending is holding up despite the price hikes.
Like yesterday’s hot inflation data, these reports fuel concerns about a sooner-than-expected boost in interest rates. The CME FedWatch tool is still showing a probability that rates won’t change at this month’s Federal Reserve meeting, but will likely move by 25 basis points in December. One analyst called the Fed’s impending decision a “coin toss” at this point. That likely means that the dissents to raising rates among Federal Open Market Committee members are shrinking.
“On the economic data alone, there is little reason for the Fed to hesitate,” CNBC quoted Mizuho analyst Alex Pelle.
The AI stock selloff has been building for some time as investors continue to question whether the massive multi-billion-dollar investments into what is still considered a fledgling technology are worth it. That’s not to suggest investors are forsaking the technology – how can they? AI has become an integral part of most people’s lives, whether they know it or not. But it might be underscoring the fear of risk rising well above reward despite the mounting demand. Or, they could simply be taking profits off the table as many of these stocks have had strong upward price movement this year.
At the same time, AI firms continue to report strong results. Anthropic, which is not yet publicly held, told investors last night that quarterly revenues were up 50% to $16.8 billion ahead of a potential initial public offering (IPO) this year. Taiwan Semiconductor Manufacturing Co. (TSMC) turned in a net profit that was 69% higher on a year-over-year basis, outpacing estimates. It was the sixth straight record quarterly profit. In what might be considered a nod to investors, TSMC said demand is still “extremely robust” but tempered its outlook because of potentially short supply.
"Looking ahead, we continue to observe consumer and price-sensitive end-markets segments are being challenged due to the impact of rising component prices and macroeconomic uncertainties," Chief Executive C.C. Wei said on an earnings call. "As such, we are being prudent in our business planning going into 2027,” Reuters reported.
Happy Trading!
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