US stock index futures were sharply lower this morning. There was no specific catalyst for the move; FX markets were quiet, as were US Treasuries. But there were widespread losses across the tech sector, which stood in contrast to yesterday's session. The semiconductor sector was badly hit overnight with Nvidia, Super Micro Computer, Advance Micro Devices and Intel all down over 2%.
All the ‘Magnificent Seven’ constituents were down as well in early trade this morning. It looks as if traders are finally booking some profits following the strong gains seen since late April, as equities bounced back following the ‘Trump Tariff Temper Tantrum’. All the major US stock indices had been marking time over the past week or so, trading just south of all-time highs hit in late October.
This morning’s selloff has seen the Dow and the S&P 500 fill the gaps which opened up on Monday, 26th October. The jump followed positive trade news over the weekend ahead of President Trump’s meeting with President Xi Jinping of China. The NASDAQ has not fallen far enough to fill the gap on its own chart.
Source: TN Trader
Yesterday, the tech sector helped boost both the NASDAQ and S&P, while the Dow and Russell 2000 posted losses. Once again, news of a large investment in artificial general intelligence lifted tech.
OpenAI, the privately owned owner of ChatGPT, announced a $38 billion investment in Amazon Web Services, giving it access to Nvidia’s graphic processing units for seven years. Amazon jumped 4% on the news. But the deal has also raised fresh questions over the circulatory nature of AI investment. Well over $1 trillion has been promised for various AI programmes, and the vast majority of this involves a very small group of tech corporations, with OpenAI and Nvidia at the centre of most of it.
So far, there has been precious little return on all this funding, but investors expect to reap outsized gains in future years. But some are doubting whether AI can possibly live up to the hype in terms of future returns. After last night’s close, Palantir Technologies handily beat earnings expectations. But its stock price fell in volatile trade and was down 6% soon after the European open.
There are also questions about the future of the Fed’s monetary policy. Fed Chair Jerome Powell made it clear last week that a December rate cut is not a foregone conclusion. Yesterday, Federal Reserve Bank of Chicago President Austan Goolsbee said that the threshold for cutting rates next month was higher than at the last two meetings.
In contrast, Trump appointee Stephen Miran said he favoured deeper cuts. The Fed is in a difficult position, made worse by the government shutdown, which has prevented the release of key economic data. Today’s JOLTS Job Openings is unlikely to be published, while Friday’s Non-Farm Payrolls has been postponed for a second month.
Instead, market participants will be paying very close attention to tomorrow’s ADP Payroll numbers. Yesterday's ISM Manufacturing PMI came in below expectations and indicated the eighth successive month of contraction in the sector.
