Dow Jones Futures gain after Wall Street opens week with gains
- US index futures trade mixed as Wall Street adopts a cautious stance ahead of Wednesday's Fed decision.
- Markets widely price in an 89.5% likelihood of a Fed rate pause for October.
- Recent gains in major technology stocks continue to provide underlying support for equity markets.
Dow Jones futures gain by 0.05% to trade near 52,580 during European hours on Tuesday. S&P 500 futures decline 0.11% to trade around 7,710, while Nasdaq 100 futures lose 0.30% to trade near 29,350.
US stock futures are mixed as traders adopt caution ahead of looming Federal Reserve (Fed) policy decision due on Wednesday. Financial markets anticipate that the Federal Reserve will keep interest rates unchanged at its upcoming October meeting before potentially pursuing another rate hike in December. According to the CME FedWatch Tool, market pricing currently reflects an 89.5% probability of a rate pause at the October policy meeting, alongside an 82.3% chance of a rate increase in December.
Heather Long, chief economist at Navy Federal Credit Union, said that “Inflation is still the No. 1 problem in the US economy, and there are a lot of signs it is getting more broad-based.” “For consumers, it means really high borrowing costs for the foreseeable future.” However, “given that it’s right before an election,” Heather added, “they won’t hike in October.”
Wall Street kicked off the week on a solid note, as enthusiasm over Anthropic’s planned IPO boosted technology shares ahead of a busy earnings calendar and the Federal Reserve’s policy meeting. During Monday’s regular session, the Dow gained 0.3%, the S&P 500 advanced 0.7%, and the Nasdaq Composite climbed 0.8%.
Tesla surged more than 5%, while Nvidia rose 2%, with Microsoft and Amazon also ending higher. The gains came as investors weighed concerns over the heavy borrowing needed to fund artificial intelligence investments.
Chip rally extends as Mag 7 and ai laggards regain ground
Analysts at Deutsche Bank highlight that the upbeat tone in equities was underpinned by a strong recovery in the semiconductor complex, with the Philadelphia Semiconductor Index rising “+2.82% after falling -3.21% last week.” They note that the broader tech leadership also participated, as “the Mag 7 gained +0.76%,” while some of the recent AI-related underperformers staged a rebound. This included CoreWeave, which finished “+1.76%, despite initially falling in pre-market trading after Elon Musk wrote on X on Sunday that ‘neoclouds’ would see ‘guppy-level death and consolidation’, arguing that debt markets would be reluctant to finance companies overwhelmingly reliant on AI data centres for their revenues.”
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.
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