Can Dow Jones futures stay steady amid a hawkish Fed rate outlook and Nvidia leadership turmoil?

US index futures remain under pressure, with markets assigning nearly 91% odds to a December Fed rate hike after hot US CPI data.
Selling drove Nvidia shares down over 8.5% in after-hours trading as reports pointed to leadership turmoil and the possible removal of CEO Jensen Huang.
Gains in the Nasdaq and S&P 500 helped US stocks finish Wednesday’s regular session higher, supported by a 25% jump in CoreWeave.

US equity futures present a mixed picture during Thursday’s European trading hours: Dow Jones futures hold near 52,580, while S&P 500 futures drop 0.43% to around 7,610 and Nasdaq 100 futures retreat 0.92% to around 28,210.

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

An increasingly hawkish view of the Federal Reserve’s (Fed) policy outlook is weighing on US equity futures, following stronger-than-expected US Consumer Price Index (CPI) inflation figures.

Bets on a December rate increase have strengthened since Fed Governor Christopher Waller said earlier this week that he would back a quarter-point rise, or even a half-point increase should inflation deteriorate. The probability of a December hike priced into markets now stands at nearly 91%, according to the CME FedWatch Tool.

Fresh selling in Nvidia shares has made investors more cautious, with reports suggesting possible turmoil in the chipmaker’s leadership. The stock slumped more than 8.5% in after-hours trading after The New York Times reported allegations of a relationship between CEO Jensen Huang and a company executive. Separately, The Wall Street Journal reported that the board was preparing to remove Huang from his role. As Nvidia occupies a central position in the AI boom, instability within the company could have wider repercussions for global markets.

Wednesday’s regular US trading session had earlier ended on a positive note. The Nasdaq Composite rose 1.6%, the S&P 500 added 1.31% and the Dow Jones Industrial Average climbed 0.49%. Helping to drive those gains was a 25% jump in AI computing company CoreWeave following an upbeat business outlook, which strengthened investor confidence across the broader AI sector.

How did the Veterans Day Treasury closure affect US bond trading?

Midweek activity across the US rates complex remained subdued, HSBC said, noting that “the US Treasury market was closed in observance of Veterans Day,” which temporarily took away an important benchmark for bond pricing and cross-asset flows.

AI stocks: key questions answered

How is artificial intelligence defined?

At its core, artificial intelligence is an academic field concerned with reproducing human cognitive functions, logical understanding, perception and pattern recognition in machines. Commonly shortened to AI, the discipline encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. Ultimately, researchers across the field aim to develop artificial general intelligence, or AGI: a machine capable of solving arbitrary problems for which it has received no specific training.

Where is AI being applied?

Artificial intelligence has a wide range of applications. Among the best-known are generative AI platforms trained on large language models (LLMs) to respond to text-based questions, such as ChatGPT and Google’s Bard platform. With Midjourney, users can create original images by entering text prompts. Other AI systems apply probabilistic methods to assess an entity’s characteristics or how it is perceived. For example, Upstart’s lending platform assesses applicants’ creditworthiness through an AI-enhanced credit rating system that searches the internet for information about their careers, wealth profiles and relationships. Elsewhere, AI draws on extensive databases of scientific research to propose potential new pharmaceuticals for laboratory testing. Content aggregators, including YouTube, Spotify and Facebook, collect and organise information about users’ viewing habits, enabling AI applications to recommend personalised content.

Which stocks offer exposure to AI?

Among companies operating in AI is semiconductor manufacturer Nvidia (NVDA), which produces AI-focused computer chips as well as some of the platforms engineers use to develop AI applications. Because it supplies the tools required for further AI applications, many supporters regard Nvidia as a way to invest in the infrastructure underpinning the AI revolution. Another participant is Palantir Technologies (PLTR), a “big data” analytics company with sizeable contracts across the US intelligence community. Those agencies use its Gotham platform to analyse data, identify intelligence leads and support pattern recognition. Major corporations, meanwhile, use Palantir’s Foundry product to monitor employee and customer data for predictive analytics and anomaly detection. Microsoft (MSFT) holds a substantial stake in OpenAI, the creator of ChatGPT, which has not yet gone public. OpenAI’s technology has also been incorporated into Microsoft’s Bing search engine.

Could AI fuel a fresh stock market bubble?

AI-linked shares began climbing after ChatGPT became available to the public in late 2022. Over the six months following its release, Nvidia, for example, gained well over 200%. The rally quickly prompted Wall Street commentators to question whether another technology bubble was taking hold. Prominent investor Stanley Druckenmiller, who has held significant investments in both Palantir and Nvidia, argued that bubbles never run for just six months. In his view, if enthusiasm for AI developed 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. By mid-2023, the best assessment was that the market had not entered a bubble, at least for the time being. Although Nvidia then traded at 27 times forward sales, analysts anticipated exceptionally strong revenue growth for years ahead. For comparison, the NASDAQ 100 was valued at 60 times earnings at the peak of the DotCom bubble, against 25 times earnings in mid-2023.