Market Overview
The US market session closed with a tech-led rebound, particularly in artificial intelligence (AI)-related stocks, reversing last week’s significant sell-off. Despite this recovery, investor scrutiny over the financial viability and debt-fueled growth of the AI sector persists, with concerns about slowing revenue growth and increased financing costs dominating the narrative. For APAC investors, this US tech performance provides a key backdrop, though Australian shares are anticipated to open lower based on futures. Geopolitical tensions continue to fuel volatility in oil markets, while French bonds were notably impacted by domestic unrest, raising broader sovereign debt concerns.
Markets
US equities saw a mixed close. The tech-heavy Nasdaq Composite (^IXIC) led the rebound, advancing 1.11% to finish at 26,430.89. The S&P 500 (^GSPC) also closed higher, up 0.41% at 7,690.73. In contrast, the Dow Jones Industrial Average (^DJI) edged down 0.07% to 51,966.03.
Ahead of the APAC session, ASX 200 futures were pointing down 0.4% to 8787, indicating that Australian shares are poised for a lower open, according to the AFR.
In commodity markets, Brent Crude (BZ=F) closed 0.59% lower at $109.21 a barrel, while WTI Crude (CL=F) fell 3.13% to $98.24 a barrel. Gold (GC=F) also declined, down 0.50% to $4,160.30 an ounce. Iron ore, however, was reported by the AFR to be trading 0.4% higher at $US91.60 a tonne.
The Australian Dollar (AUDUSD=X) strengthened, closing 0.91% higher at US¢0.6982. Meanwhile, the benchmark US 10-Year Treasury yield (^TNX) rose 3.80 basis points to 5.136%. The US 2-year Treasury yield also advanced 3.2 basis points to 4.768%, according to Investing.com. Australia’s 10-year yield added 0.01%, as reported by the AFR.
What Drove Markets
The rebound in US tech stocks comes amid intensifying scrutiny of the artificial intelligence (AI) trade’s economic fundamentals. Concerns linger over slowing revenue growth, exemplified by Anthropic’s third-quarter revenue of $16.8 billion. While an increase from the previous quarter, it nevertheless raised flags among investors regarding the pace of growth within the AI build-out. Furthermore, rising debt-fueled financing for AI infrastructure providers like CoreWeave saw its credit default swaps reach distress levels.
King Lip, chief strategist and partner at BakerAvenue Wealth Management, stated that the AI trade is transitioning from a phase of promise to one requiring proof, noting that investors are becoming more discriminating and are focusing on whether companies can generate the necessary return on capital to justify their investments. Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, highlighted that the AI buildout is no longer interest-rate insensitive, increasingly financed through debt and equity. He warned that if elevated financing costs slow capital issuance, the resulting loss of revenue could weaken investment directly and, through softer equity markets, weigh on consumer spending. Adding to the sector’s pressures, reports of advances by China’s ChangXin Memory Technologies contributed to a significant sell-off in memory chipmakers last week.
Geopolitical tensions continued to fuel volatility in oil markets. Reported ship attacks in the Persian Gulf, alongside ongoing attacks on energy infrastructure between Ukraine and Russia, and Iran-backed Houthi attacks on Saudi Arabian targets, heightened concerns over supply disruptions.
In Europe, a weekend of violent unrest in France intensified existing worries about the country’s debt levels. This led to a heavy sell-off in French bonds and surging 10-year borrowing costs, highlighting broader anxieties about fiscal stability in a global environment marked by rising interest rates and increased scrutiny of government finances.
Stocks to Watch
Several key stocks saw notable movements or are set for significant announcements. Intel (INTC) advanced 2.43% to 92.03 following an upgrade by JPMorgan analysts. Memory chipmakers also saw a rebound, with Micron Technology (MU) up 2.97% to 904.90, though it had fallen 12.64% over the past week. Samsung Electronics (005930.KS) advanced 1.16% to 218,000.00, and SK Hynix (000660.KS) gained 0.39% to 1,277,000.00, both having experienced significant declines of 18.81% and 25.89% respectively last week, partly due to reports of advances from Chinese competitors.
However, CoreWeave (CRWV), a bellwether neocloud AI provider, reversed course from earlier gains, closing down 0.44% at 61.12 despite receiving a buy recommendation from Goldman Sachs. The stock had plunged more than 25.08% over the past week over debt concerns, with its credit default swaps reaching distress levels. The VanEck Semiconductor ETF (SMH), a broad proxy for the sector, closed 1.61% higher at 548.46, reflecting the overall tech rebound.
In Australia, BHP Group Limited (BHP.AX) saw its shares rise 0.72% to 60.46, ahead of its third-quarter results due to be announced during the APAC session.
Additional corporate developments included Elon Musk’s pledge to give one SpaceX share for every US child next year, a commitment valued at approximately $10.5 billion, and Apple’s preparations to launch its first touchscreen laptop.