Market Overview
US equities experienced a mixed close on Friday, setting a cautious tone for the coming trading week in APAC markets. The Dow Jones Industrial Average slid significantly, primarily driven by surging crude oil prices amid escalating fears of a renewed US-Iran conflict and weakness in defensive sectors. In contrast, the Nasdaq Composite saw a modest stabilization, posting a slight loss, as some technology stocks recovered after a steep AI-led selloff on Thursday. However, broader concerns persist regarding the sustainability and funding requirements for artificial intelligence infrastructure. As investors look towards the coming trading week, developments in the Middle East and any further disruptions to global oil supplies will be closely monitored. The earnings calendar will also be busy, with major technology companies, including hyperscalers Microsoft, Alphabet, and Amazon, set to report results. Central bank expectations will also be assessed, with key upcoming economic data, such as preliminary GDP figures for the US and the Eurozone, US PCE inflation data, preliminary inflation figures for major European economies including Germany, Tokyo inflation, and Australia’s CPI data, in focus. Political developments will also remain in the spotlight, including the UK’s Autumn Budget, China’s Communist Party’s fifth plenum, and elections in Brazil and Israel.
Markets
On Friday, the Dow Jones Industrial Average (^DJI) declined 1.23% to 52,215.16, while the S&P 500 (^GSPC) slipped 0.52% to 7,623.68. The Nasdaq Composite (^IXIC) posted a modest loss of 0.21% to 25,955.34.
In commodity markets, West Texas Intermediate (WTI) Crude (CL=F) surged 4.14% to 103.59 per barrel, crossing the $100 mark. Brent Crude (BZ=F) declined 1.20% to 111.81 per barrel.
The 10-Year Treasury yield (^TNX) rose 3.50 bp to 4.988%. In currency markets, the US Dollar Index (DX-Y.NYB) gained 0.19% to 101.80, while the Australian Dollar (AUDUSD=X) rose 0.13% to 0.7038 against the US dollar.
As it is currently the weekend, Australian and major Asian equity exchanges are closed for their ordinary trading sessions. When Asian markets resume trading, investors will closely monitor the Australian Dollar’s performance ahead of Australia’s upcoming CPI data.
What Drove Markets
Geopolitical Tensions and Energy Market Impact: Fears of renewed conflict between the U.S., Israel, and Iran significantly influenced oil markets. Reports indicate that the U.S. and Israel may be drawing up plans for renewed attacks on Iran as part of the regional war, with Iran prepared to strike back. This fueled the surge in WTI crude and contributed to broader market uncertainty and inflationary pressures affecting Brent prices.
AI Infrastructure Funding Scrutiny: Persistent concerns over the substantial capital expenditure required to build AI infrastructure continued to weigh on the sector. Analysts at Vital Knowledge stated that “AI sentiment and positioning have swung aggressively towards the negative end of the spectrum.” Nvidia CEO Jensen Huang’s comments that there is a scarcity of capital for the AI buildout and that demand for capital is much greater than the availability further fueled investor concerns regarding AI infrastructure spending. Analysts at Yardeni Research questioned whether sufficient capital even exists to finance ambitious AI spending plans. Instagram-owner Meta Platforms’ intention to issue a new class of non-voting shares to fund its AI ambitions also sparked concerns about potential share dilution. The 10-year Treasury yield had fallen below the key 5% level on Thursday for the first time in a month, as investors grew cautious about the massive borrowing underway to finance the building of AI data centers.
Shifting Sector Performance: Friday’s trading session saw a shift in market pressure, with defensive sectors such as consumer staples, utilities, and healthcare coming under pressure, alongside declines in several Dow components. This contrasted with a previous tech-led sell-off on Thursday and suggested a rotation of concerns among investors.
Monetary Policy Expectations: Monetary policy will be another key focus next week, with interest rate decisions due from the Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada, the Bank of Thailand, and the Reserve Bank of New Zealand. The Federal Reserve is widely anticipated to skip an interest rate increase at its upcoming policy meeting next week, following its first rate hike since 2023 in September. While some policymakers have flagged the need to cool inflation to its 2% target, the central bank is currently expected to raise rates at its final gathering of the year in December. This outlook remains a critical factor for global bond and currency markets. Debt markets in France also continue to experience stress, with traders grappling with ongoing social unrest and a precarious fiscal position, which stands in contrast to US bond market dynamics.
Stocks to Watch
- American Express (AXP) fell 3.68% after announcing plans to cut approximately 5% of its global workforce, citing the need to “prepare for AI.”
- Caterpillar (CAT) edged down 2.42%, contributing to the pressure on the Dow Jones Industrial Average.
- Goldman Sachs (GS) lost 1.75%, adding pressure to the 30-stock index.
- Microsoft (MSFT) ticked higher by 0.66% as some technology stocks recovered. Microsoft is slated to report earnings next week, which will be a key focus for AI-related sentiment.
- Micron Technology, Inc. (MU) made a stronger move higher, up 2.46%, along with Advanced Micro Devices (AMD) which rose 1.74%, supporting the Nasdaq’s modest rebound as chip stocks recovered.
- Meta Platforms (META) fell 0.96% amid concerns over its plan to issue a new class of non-voting shares to fund AI ambitions, raising worries about potential dilution.
- NVIDIA (NVDA) declined 0.59%, with CEO Jensen Huang’s comments that there is a scarcity of capital for the AI buildout and that demand for capital is much greater than the availability further fueling investor concerns regarding AI infrastructure spending.
- Western Digital (WDC) fell 2.97% despite reporting solid quarterly returns, after having soared significantly year-to-date due to strong demand for memory storage for AI systems.