Weekly house view | Tech tumble
The week in review
The S&P 5001 fell 1.9% last week, hit by a tumble in big tech stocks as investors grew worried about the sustainability of the artificial intelligence (AI) boom. The Philadelphia Semiconductor Index (SOX) fell for eight consecutive trading days. Anthropic told investors its third-quarter revenue had risen by nearly 50% to USD 16.8 bn and that the company was profitable. Yet revenue growth was slower than the rate the group enjoyed earlier this year.
Higher Treasury yields and growing concerns about the profitability of AI are weighing on demand for bonds issued to finance vast data centres. These concerns were reflected by a rise in the cost of protecting against defaults by some big US tech companies including Oracle and CoreWeave.
BlackRock CEO Larry Fink said that for the first time in his 50-year career he has observed genuine shortages of capital. Large US banks’ third-quarter earnings were mixed but still gave rise to 1-2% earnings upgrades. S&P 500 earnings growth estimates remain robust. The S&P 500 forward price/earnings ratio is below lows seen in March.
Fantastic earnings momentum, or FEMO, is offsetting a fading fear of missing out (FOMO) for equities.
Quote of the week
“A lot of investors have no clue what they are investing in. They set very extreme expectations only to find out that it's almost like they are in a casino,” Broadcom Inc. CEO Hock Tan said.
Key data
US consumer price inflation (CPI) rose 0.6% month-over-month in September, with the annual rate rising to 3.7%. US CPI has remained above the Federal Reserve's 2% target for 67 consecutive months. Half of the districts covered in the Fed's Beige Book characterised price pressures as robust or intensifying.
US retail sales rose 0.8% in September, above expectations of 0.3%.
China’s exports surged 36% year-on-year in September as AI-related shipments boomed, and its trade surplus hit a record high.
