Dow Jones futures hold steady amid hawkish Fed rate outlook and leadership turmoil at Nvidia

Nearly 91% is now priced in for a December Fed rate hike. Hot US CPI data left US index futures under pressure.
Over 8.5% was wiped off Nvidia shares in after-hours trading following reports of leadership instability and the possible removal of CEO Jensen Huang.
A 25% jump in CoreWeave helped lift the Nasdaq and S&P 500 as Wednesday’s regular session ended higher.

52,580 is the level around which Dow Jones futures are holding steady. During Thursday’s European session, S&P 500 futures are down 0.43% at around 7,610, while Nasdaq 100 futures have dropped 0.92% to around 28,210.

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

Hotter-than-forecast US Consumer Price Index (CPI) inflation figures have strengthened hawkish expectations for the Federal Reserve’s (Fed) policy outlook, putting US equity futures under pressure.

A nearly 91% probability of a December rate increase is now reflected in market pricing, according to the CME FedWatch Tool. Traders increased their bets after 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.

Fresh selling in Nvidia shares prompted greater market caution as reports raised the prospect of turmoil in the chipmaker’s leadership. The stock lost 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 oust him. With Nvidia playing a central role in the AI boom, instability within the company could have wider consequences for global markets.

Wednesday’s regular US trading session had ended on a stronger note earlier in the day. The Nasdaq Composite rose 1.6%, the S&P 500 added 1.31% and the Dow Jones Industrial Average gained 0.49%. Supporting the advance was AI computing company CoreWeave, which jumped 25% following an upbeat business outlook. Its rally helped strengthen investor confidence across the broader AI sector.

Veterans Day closure pauses US Treasury trading

Midweek activity across US rates markets was subdued, HSBC said, because “the US Treasury market was closed in observance of Veterans Day,” leaving bond pricing and cross-asset flows temporarily without a key reference point.

AI equities: key questions

Artificial intelligence: the core concept

At its core, artificial intelligence is an academic field concerned with reproducing human cognitive functions, logical understanding, perception and pattern recognition in machines. Usually shortened to AI, it encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The field’s ultimate objective is artificial general intelligence, or AGI: a machine capable of solving arbitrary problems without having been trained specifically to solve them.

AI applications and their uses

Artificial intelligence has a broad range of applications. Among the best known are generative AI platforms, including ChatGPT and Google’s Bard platform, which draw on large language model (LLM) training to respond to text-based queries. For image generation, Midjourney creates 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 about their careers, wealth profiles and relationships. Scientific research databases provide another use case: AI can analyse large collections of studies to propose potential new pharmaceuticals for laboratory testing. Content aggregators such as YouTube, Spotify and Facebook collect and organise information about viewing habits, using AI applications to recommend personalised content.

Stocks with exposure to AI

Semiconductor company Nvidia (NVDA) supplies AI-focused computer chips as well as some of the platforms engineers use to develop AI applications. Its role in providing the tools for further AI development leads many supporters to regard it as a picks-and-shovels investment in the AI revolution. Another participant is Palantir Technologies (PLTR), a “big data” analytics business with substantial US intelligence community contracts. Those agencies use its Gotham platform to examine data, identify intelligence leads and support pattern recognition. Major corporations use Palantir’s Foundry product to monitor employee and customer data for predictive analytics and anomaly detection. Microsoft (MSFT), meanwhile, owns a substantial stake in OpenAI, the privately held creator of ChatGPT. OpenAI’s technology has been incorporated into Microsoft’s Bing search engine.

AI and the risk of another equity bubble

AI-related shares rallied after ChatGPT became publicly available in late 2022. Over the six months after its release, Nvidia alone gained well over 200%, quickly prompting Wall Street commentators to question whether another technology bubble was taking hold. Prominent investor Stanley Druckenmiller, 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 indeed valued at 27 times forward sales, but analysts expected exceptionally strong revenue growth for years ahead. For comparison, the NASDAQ 100 traded at 60 times earnings at the DotCom bubble’s peak, against 25 times earnings in mid-2023.