JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Nasdaq loses 4% on the week
- WTI crude settles over $101 per barrel
- Inflation worries climb but FedWatch tool stays steady
What a week! Wall Street appeared to get a blunt reality check with a three-prong attack that pressured all three major indices, pushing the technology-heavy indices to the downside for the week. What happened? If we were to put it under three columns, they might be “risk/reward,” “inflation” and “geopolitical jitters.”
Let’s start with risk/reward as it applies to artificial intelligence (AI) technology stocks. The sector was largely thumped this week as investors looked like they finally faced fears the massive investments in artificial intelligence (AI) might not be worth the wait. As we’ve noted, this has been a growing sentiment that got more legs this week when CoreWeave’s unsecured bond yields hit 15%, a rate the bond market considers distressed, leading to a 12% pullback in the stock. (CoreWeave’s overall debt and lease obligations total roughly $50 billion.) Investors seemed worried CoreWeave’s yield might be the canary in the coal mine of AI investments and rotated toward what they may consider safe havens, such as healthcare, energy and industrials. Again, that comes as analysts and corporate leaders report AI demand is still robust.
Hot inflation readings look to have intensified the walls of worry on the interest-rate front. This week’s Consumer Price Index (CPI) and Producer Price Index (PPI) reflected how prices were broadly rising, not just on gasoline and diesel. The CME FedWatch tool is targeting an 82.8% probability that the Federal Reserve will keep interest rate at the 4.0% to 4.50% range when it meets later this month. However, the probability of a 25-basis point hike in December is gaining more steam. Still, as market pundits said today, Federal Reserve Chief Kevin Warsh could surprise us all given the inflationary signs that are flashing.
On the geopolitical jitters front, WTI Crude Oil prices vaulted 3.4% to over $101 per barrel in late-day trading and pushed the energy sector higher. There looks to be plenty of reasons why: The conflict in the Middle East is growing as more strikes hit oil tankers in and around the Strait of Hormuz and Iran continues to threaten the U.S., according to published reports. At the same time, Russia’s energy infrastructure was hit, raising concerns about global fuel availability, especially surrounding diesel, according to Reuters. As all this is happening, oil inventories are shrinking, according to the Energy Information Administration (EIA).
By the time the session ended, the tech-laden Nasdaq Composite gave up 2.1% to end the week lower by 4% after hitting last week’s record peak. The S&P 500 Index lost 1.1%, also down for the week. The Dow Jones Industrial Average managed to stay positive on the week, but backtracked by 0.34% on the day.
Among the AI tech decliners we were watching include Nebius Group, which fell 12.2%, Micron gave back 5.6%, Broadcom was down 4.5% and Nvidia lost 1.4%. Nvidia options activity was heavy in 230 calls for November 20 expiration while Micron’s October 850 puts with Monday’s expiration were active.
Elswhere, Netflix lost 2.9% after the streaming video giant said it was laying off 6% of its workforce and named a new chief content officer in an effort to revive viewership growth. Vaccine makers Moderna and Novavax lost 7.8% and 12.2%, respectively, amid broad selling pressure in the sector.
Tesla shares lost 2.1% and SpaceX shares fell by 1.7% ahead of next week’s earnings releases for both as investors continue to chatter about a merger between the two Elon Musk-led companies. This might be hopeful gossip on their part – nothing has been announced or even hinted at.
Happy Trading!
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