Markets whipsaw and end the week down
Summary
Markets fluctuated last week as shifting Fed expectations and renewed debate over AI valuations drove volatility. The September jobs report showed stronger-than-expected job growth alongside rising unemployment. The S&P 500 declined 1.9% on the week and is down 3.4% on the month, though still up 13.6% year-to-date. The 10-year U.S. Treasury yield fell eight basis points to 4.06%, its lowest level since late October.
Markets whipsawed on AI bubble, jobs data, and rate cut expectations
Markets whipsawed last week as investor sentiment swung between fears of an “AI bubble” and shifting expectations for a Fed rate cut. Stocks fell early in the week amid concern that massive spending by “hyperscalers,” companies building AI infrastructure, might not generate enough profit to support elevated AI-related valuations. Nvidia eased those concerns somewhat after Wednesday’s close with strong third-quarter results that exceeded revenue and profit forecasts and raised its fourth-quarter sales outlook.
The U.S. September jobs report, released Thursday, showed 119,000 new jobs versus the 50,000 expected, alongside a rise in unemployment to 4.4%. The data took on added importance given the lack of a full October report and the late arrival of November data, both coming after the next Fed meeting.
FOMC minutes released Wednesday revealed a divided Fed on the question of a potential December rate cut, reinforcing expectations that no additional cuts are likely this year. However, on Friday, New York Fed President John Williams indicated he could support another “near-term” cut, suggesting it would not undermine the central bank’s inflation target and that policy flexibility remains. His remarks shifted market expectations sharply, with the probability of a December rate cut jumping from 39% to more than 70%, sparking a late-week rebound in equities.
Bezos joins new AI venture
Jeff Bezos announced his return to an operational role as co-CEO of Project Prometheus, a new AI startup he will lead alongside Vik Bajaj, focused on developing “AI for the physical economy.” The company, which has raised $6.2 billion and recruited researchers from OpenAI and DeepMind, aims to develop AI tools for sectors such as manufacturing, aerospace, and automotive engineering. This marks Bezos’s first operational role since stepping down from Amazon in 2021. The development also intensifies the AI talent war, creating significant challenges for smaller AI startups that cannot compete with larger companies’ resources. It also signals a potential widening of the AI sector’s market focus beyond chip manufacturers to include companies specializing in physical AI applications.
The week ahead
Investors will watch Wednesday’s Beige Book for regional economic insights ahead of the Fed’s December 10 meeting. With the FOMC entering its pre-meeting blackout period Saturday, no additional Fed commentary is expected this week.
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