Dow Jones futures retreat on Fed rate hike concerns and Nvidia leadership reshuffle; PPI data in focus

87% odds of a December Fed hike follow hot CPI data. US index futures retreat ahead of the PPI release.
0.36% Dow Jones loss marks Thursday’s weaker Wall Street close, with the S&P 500 and Nasdaq also falling.
Following Jensen Huang’s resignation, Nvidia appoints CFO Colette Kress as interim CEO; shares gain modestly after hours.

0.15% is the decline in Dow Jones futures during Friday’s European session. The contract trades around 52,310. S&P 500 futures are down 0.16% near 7,600, while Nasdaq 100 futures lose 0.30% to around 28,300.

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

Persistent inflation worries and rising expectations of tighter Federal Reserve (Fed) policy weighed on US stock futures. This week’s stronger-than-forecast US Consumer Price Index (CPI) figures strengthened expectations of a December rate increase. Those expectations gained further support when Fed Governor Christopher Waller said a 50-basis-point rise should be considered if core inflation stays elevated. The CME FedWatch tool puts traders’ implied probability of a 25-basis-point increase at the central bank’s December 8–9 meeting at nearly 87%, with a 13.13% chance of a half-point rise.

Friday’s US Producer Price Index (PPI) release is the next focus for investors seeking guidance on the Fed’s rate trajectory. Forecasts point to October headline PPI growth of 6.6% year-on-year and a 5.0% increase in core PPI. The report follows Thursday’s losses across Wall Street’s main indices: the Dow shed 0.36%, the S&P 500 lost 0.35% and the Nasdaq Composite fell 0.39%.

Leadership upheaval at Nvidia is also keeping sentiment cautious. CEO Jensen Huang resigned following reports of extramarital affairs, with CFO Colette Kress taking over as interim CEO. As investors weighed the transition, Nvidia shares nevertheless recovered nearly 1% in after-hours trading, recouping part of Thursday’s decline.

AI stocks: key questions

Artificial intelligence: the core concept

At its core, artificial intelligence is an academic discipline focused on replicating human cognitive functions, logical understanding, perception and pattern recognition in machines. Usually shortened to AI, the field encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. Its ultimate objective is artificial general intelligence, or AGI: a machine capable of solving arbitrary problems without having been trained to address them.

How is AI used in practice?

AI has a broad range of applications. Among the best known are generative AI platforms, including ChatGPT and Google’s Bard platform, which draw on training using large language models (LLMs) to respond to text-based questions. For image creation, Midjourney produces original pictures from text supplied by users. Other AI systems apply probabilistic methods to assess an entity’s characteristics or how it is perceived. Upstart’s lending platform, for example, assesses applicants’ creditworthiness through an AI-enhanced credit rating system that searches the internet for information on their careers, wealth profiles and relationships. In pharmaceutical research, other AI systems draw on large databases of scientific studies to propose potential new drugs for laboratory testing. Content aggregators such as YouTube, Spotify and Facebook collect and organise viewing-habit data, using AI applications to recommend personalised content.

Which stocks offer exposure to AI?

Semiconductor company Nvidia (NVDA) 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 supplier of essential infrastructure for the AI revolution. Large contracts with the US intelligence community are a key part of the business of Palantir Technologies (PLTR), a “big data” analytics company. Intelligence agencies use its Gotham platform 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. Meanwhile, Microsoft (MSFT) holds a substantial stake in OpenAI, the creator of ChatGPT, which remains unlisted. OpenAI’s technology has been incorporated into Microsoft’s Bing search engine.

AI and the risk of another stock market bubble

AI-related shares rallied after ChatGPT became publicly available in late 2022. Over the six months after its release, Nvidia, for example, gained well over 200%. Wall Street commentators quickly questioned whether another technology bubble was taking hold. Stanley Druckenmiller, the prominent investor who has held sizeable positions in both Palantir and Nvidia, argued that bubbles never last just six months. If enthusiasm for AI did develop into a bubble, he said, extreme valuations would persist for at least two and a half years or longer, as in the DotCom bubble of the late 1990s. By the midpoint of 2023, the best assessment was that the market was not in a bubble, at least for the time being. Nvidia was admittedly trading at 27 times forward sales, but analysts expected exceptionally strong revenue growth for years ahead. For comparison, the NASDAQ 100 reached 60 times earnings at the DotCom bubble’s peak, versus 25 times earnings in mid-2023.