Dow Jones futures rise as markets bet on Fed rate hold, tech recovery
- US indices futures advance as traders expect Fed rates to remain unchanged in October.
- Tech giants and chipmakers rallied during Monday’s session, helping the S&P 500 and Nasdaq recover losses.
- Traders are shifting focus to a busy Tuesday earnings lineup including Netflix, GM, and United Airlines.
Dow Jones futures gain by 0.38% to trade near 52,380 during European hours on Tuesday. S&P 500 futures surge 0.13% to trade around 7,740, while Nasdaq 100 futures lose by 0.12% to near 29,690.
US stock futures rose as market expectations grew that the Federal Reserve (Fed) will leave interest rates unchanged. According to the CME FedWatch tool, Fed funds futures traders expect the central bank to maintain current rates at its October policy meeting, while pricing in an 89.4% probability of a rate hike in December.
Fed Chair Kevin Warsh expressed optimism last week regarding the resilience of the US economy, though he refrained from offering specific guidance on the timing or likelihood of future rate adjustments.
Wall Street initiated the week with mixed results, supported by a recovery in technology shares. During Monday’s regular US session, the Dow Jones edged lower by 0.07%, while the S&P 500 and Nasdaq Composite rose 0.41% and 1.11%, respectively, rebounding from last week’s sharp selloff driven by growing concerns over AI financing.
Chipmakers and other mega-cap stocks led the recovery, with Micron, Nvidia, SanDisk, Amazon, and Tesla making gains. Investors are now preparing for a busy corporate earnings schedule on Tuesday, with reports expected from General Electric, Netflix, Raytheon Technologies, United Airlines, and General Motors, among others.
AI rebound lifts US yields as markets lean toward more Fed tightening
Strategists at Deutsche Bank highlight that the stabilisation in AI‑related stocks “also pushed US Treasury yields higher, as it countered fears about an AI-related slowdown.” They note that the move was driven predominantly by real yields, with “higher real yields” accounting for “the bulk of the rise in Treasury yields yesterday, rather than inflation breakevens.” As a result, “Treasury yields saw a consistent rise across the curve, with the 2yr yield (+6.5bps) up to 4.77%, whilst the 10yr yield (+6.6bps) rose to 5.14%.” Deutsche Bank adds that “optimism on the growth side” fed into the policy outlook, as investors “priced in slightly more rate hikes for the months ahead,” with “74bps of hikes…priced in by the June 2027 meeting at the close, up +7.7bps relative to Friday.”
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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