Dow Jones futures remain steady amid hawkish Fed rate outlook, Nvidia leadership turmoil
- US index futures struggle as hot US CPI data pushed market odds for a December Fed hike to nearly 91%.
- Nvidia shares tumbled over 8.5% after-hours amid reports of leadership turmoil and potential removal of CEO Jensen Huang.
- Regular Wednesday trading closed higher, led by a 25% CoreWeave surge that boosted the Nasdaq and S&P 500.
Dow Jones futures remain steady around 52,580 during the European hours on Thursday. Meanwhile, S&P 500 futures decline 0.43% to trade around 7,610, and Nasdaq 100 futures fall 0.92% to trade around 28,210.
US equity futures face challenges amid growing hawkish sentiment surrounding the Federal Reserve's (Fed) policy outlook, fueled by hotter-than-expected US Consumer Price Index (CPI) inflation data.
Traders have ramped up bets on a December rate hike after Fed Governor Christopher Waller indicated earlier this week that he would support a quarter-point increase, or even a half-point move if inflation worsens. According to the CME FedWatch Tool, markets are now pricing in a nearly 91% probability of a December rate hike.
Market sentiment turned cautious as Nvidia shares came under renewed selling pressure following reports of potential leadership turmoil at the chipmaker. During after-hours trading, the stock tumbled more than 8.5% after The New York Times reported allegations of a relationship between CEO Jensen Huang and a company executive, while The Wall Street Journal reported that the board was preparing to remove him from his position. Given Nvidia’s central role in the AI boom, instability at the company risks triggering broader repercussions across global markets.
Earlier in the day, US equities closed Wednesday’s regular session higher, with the Nasdaq Composite and S&P 500 gaining 1.6% and 1.31%, respectively, while the Dow Jones Industrial Average advanced 0.49%. That rally was bolstered by a 25% surge in AI computing firm CoreWeave on the back of an optimistic business outlook, which helped reinforce investor confidence in the wider AI sector.
US bond trading pauses as Veterans Day shuts Treasury market
According to HSBC, activity in the US rates complex was muted midweek as “the US Treasury market was closed in observance of Veterans Day,” temporarily removing a key reference point for bond pricing and cross-asset flows.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.