Dow Jones futures retreat amid Nvidia leadership shakeup and Fed rate hike concerns as markets await PPI data

US index futures retreat ahead of PPI as elevated CPI pushes the odds of a December Fed rate hike to 87%.
Thursday’s Wall Street session ended in losses, with the Dow Jones down 0.36% and the S&P 500 and Nasdaq also finishing lower.
Following Jensen Huang’s resignation, CFO Colette Kress takes over as interim CEO as Nvidia posts a modest after-hours gain.

Losses across US index futures mark Friday’s European trading hours, with Dow Jones futures down 0.15% at around 52,310. S&P 500 futures are trading near 7,600, a decline of 0.16%, while Nasdaq 100 futures are lower by 0.30% at around 28,300.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Persistent inflation worries and mounting expectations of tighter Federal Reserve (Fed) monetary policy weighed on US stock futures. The case for a December rate increase strengthened after this week’s US Consumer Price Index (CPI) reading exceeded expectations. Fed Governor Christopher Waller further reinforced that outlook by saying a 50-basis-point increase should be considered if core inflation stays elevated. Traders now assign nearly 87% odds to a 25-basis-point hike at the central bank’s December 8–9 meeting, according to the CME FedWatch tool, with a half-point increase carrying a 13.13% probability.

Further clues to the Fed’s rate trajectory are expected from Friday’s US Producer Price Index (PPI) report, now the focus for investors. Forecasts point to a 6.6% year-on-year rise in October headline PPI and a 5.0% increase in core PPI. The release follows a weaker Thursday close for Wall Street’s main indices: the Dow lost 0.36%, the S&P 500 shed 0.35%, and the Nasdaq Composite slipped 0.39%.

Leadership upheaval at Nvidia is also keeping market sentiment cautious, after CEO Jensen Huang resigned following reports of extramarital affairs. Even so, the company’s shares recovered nearly 1% in after-hours trading, recouping part of Thursday’s decline. Investors were assessing the change in leadership as CFO Colette Kress took charge as interim CEO.

AI stocks: common questions answered

How is artificial intelligence defined?

At its core, artificial intelligence is an academic field concerned with replicating human cognitive functions, logical understanding, perception and pattern recognition in machines. Commonly shortened to AI, it encompasses several sub-fields: artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. Creating artificial general intelligence, or AGI, is the field’s ultimate objective. Such a machine would be able to tackle arbitrary problems it had not been trained to solve.

Where is AI being applied?

Artificial intelligence has a wide range of applications, the most familiar being generative AI platforms trained on large language models (LLMs) to respond to text-based questions. ChatGPT and Google’s Bard platform are examples. For image creation, Midjourney produces original visuals from text supplied by users. Probabilistic techniques underpin other forms of AI that assess an entity’s attributes or how it is perceived. One example is Upstart’s lending platform: its AI-enhanced credit rating system assesses applicants’ creditworthiness by searching the internet for information on their careers, wealth profiles and relationships. Elsewhere, AI draws on extensive databases of scientific studies to propose potential new pharmaceuticals for laboratory testing. By gathering and organising information about viewing habits, YouTube, Spotify, Facebook and other content aggregators use AI applications to recommend personalised content.

Which stocks offer exposure to the AI sector?

Among the companies linked to AI is semiconductor maker Nvidia (NVDA), which develops AI-focused computer chips as well as some of the platforms engineers use to create AI applications. Because it supplies the tools needed for further AI applications, many supporters regard Nvidia as a picks-and-shovels investment in the AI revolution. Another name is Palantir Technologies (PLTR), a company specialising in “big data” analytics. Under sizeable contracts with the US intelligence community, its Gotham platform is used to analyse data, identify intelligence leads and support pattern recognition. Major corporations use its Foundry product to monitor employee and customer data for predictive analytics and anomaly detection. Microsoft (MSFT), meanwhile, owns a substantial stake in OpenAI, the creator of ChatGPT, which remains unlisted. OpenAI’s technology has been incorporated into Microsoft’s Bing search engine.

Is artificial intelligence likely to fuel another stock market bubble?

A rally in many AI-linked stocks followed ChatGPT’s public launch in late 2022. In the six months after the release, for example, Nvidia gained well over 200%. The surge quickly prompted Wall Street commentators to question whether another technology bubble was taking hold. Renowned investor Stanley Druckenmiller, whose major investments have included both Palantir and Nvidia, argued that bubbles never run for just six months. In his view, if enthusiasm for AI did turn into a bubble, extreme valuations would persist for at least two and a half years or longer, as they did during the DotCom bubble of the late 1990s. As of mid-2023, the best assessment was that the market was not in a bubble, at least for the time being. Although Nvidia then traded at 27 times forward sales, analysts forecast exceptionally strong revenue growth over the years ahead. By comparison, the NASDAQ 100’s valuation was 25 times earnings in mid-2023, against 60 times earnings at the DotCom bubble’s peak.