Dow Jones futures fall amid Fed rate hike fears, Nvidia leadership shakeup, PPI data eyed
- US index futures decline as hot CPI data drives 87% odds of a December Fed hike ahead of PPI data release.
- Wall Street closed lower Thursday; Dow Jones dropped 0.36%, while the S&P 500 and Nasdaq also declined.
- Nvidia edges higher after-hours as CFO Colette Kress becomes interim CEO following Jensen Huang’s resignation.
Dow Jones futures decline 0.15% to trade around 52,310 during the European hours on Friday. Meanwhile, S&P 500 futures decline 0.16% to trade near 7,600, and Nasdaq 100 futures fall 0.30% to trade around 28,300.
US stock futures declined amid persistent inflation concerns and growing expectations for tighter Federal Reserve (Fed) monetary policy. Stronger-than-expected US Consumer Price Index (CPI) data released earlier this week reinforced forecasts for a rate hike in December, particularly after Fed Governor Christopher Waller noted that a 50-basis-point increase should be considered if core inflation remains elevated. According to the CME FedWatch tool, traders are now pricing in nearly 87% odds of a 25-basis-point hike at the central bank's December 8–9 meeting, alongside a 13.13% probability of a half-point increase.
Investors are now turning their attention to Friday’s US Producer Price Index (PPI) report for further clarity on the Fed's rate path, with October headline PPI expected to rise 6.6% year-on-year, and core PPI projected to increase 5.0%. This comes after Wall Street’s major indexes closed lower on Thursday, with the Dow falling 0.36%, the S&P 500 dropping 0.35%, and the Nasdaq Composite declining 0.39%.
Market sentiment also remains cautious due to leadership turmoil at Nvidia after CEO Jensen Huang stepped down following reports of extramarital affairs. However, Nvidia shares rebounded nearly 1% in after-hours trading, recovering some of Thursday’s losses as investors assessed the leadership transition, with CFO Colette Kress stepping in as interim CEO.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
