Global stock markets advanced on Wednesday, with investors temporarily setting aside concerns about expectations for further Federal Reserve rate hikes and instead focusing on renewed momentum in the artificial intelligence investment boom.
Troubled cloud computing company CoreWeave Inc. reported strong results, while Anthropic PBC's initial public offering received enthusiastic investor demand, providing support for market sentiment.
As of press time, Dow futures were up 0.13%, S&P 500 futures were up 0.87%, and Nasdaq futures were up 1.93%. European stocks were just a step away from their all-time high.
In European markets, the Stoxx 600 rose 0.3%, just short of its record closing level set in August, with technology and energy sectors leading gains. Defense company CSG NV slashed its full-year profit outlook, sending its shares plunging to their lowest level since listing in January this year. Jefferies strategist Mohit Kumar said that relatively low positioning could provide further upside momentum for European stocks. Currently, investor allocations to European equities remain underweight compared with the U.S. market. Kumar said: "We have been looking at rotation opportunities beyond the technology theme, not only sector rotation within the U.S. market, but also diversification into Europe and emerging markets. Our positioning indicators show that allocations in both equity and credit markets are now close to neutral, which is one of the reasons we are bullish on risk assets."
Bloomberg macro strategist Conor Cooper said: "European stocks are heading toward a record closing level, and there are reasons to believe the rally still has room to continue. After another solid earnings season, corporate profits remain supportive. The economic outlook provides another positive factor. All else being equal, a more hawkish policy stance from the Federal Reserve is not entirely bad news for European equities, because it could drive the dollar stronger, which is favorable for European exporters."
AI Trade Revival Pushes U.S. Stock Futures Higher
Traders rushed back into AI trades, with NVIDIA expected to post its first single-day gain since CEO-related controversy came to light. Nasdaq 100 futures extended their rebound from the previous selloff in AI-related stocks. CoreWeave rose 15% in early trading after strong sales growth eased concerns about its highly leveraged business model. Peers such as Iren Ltd. and Nebius Group NV also moved higher in tandem. CoreWeave said it expects to become profitable in 2028, easing worries that its debt-fueled business expansion may not be supported by sufficient demand. Alberto Conca, chief investment officer at Swiss wealth manager LFG+ZEST, said: "These results once again prove that demand for artificial intelligence remains very strong. However, major questions remain about whether CoreWeave's debt burden is sustainable."
Multiple Positive Developments Boost AI Trade
Another piece of evidence of strong AI demand came from OpenAI. The company's quarterly revenue reached $10 billion for the first time. Meanwhile, the Financial Times reported that Anthropic's underwriters are considering raising its IPO valuation. AI stocks are rebounding after the U.S. midterm election results triggered market turbulence. CoreWeave's results show that despite the many challenges facing the data center industry, sales growth remains strong. However, rising expectations for Federal Reserve rate hikes are still limiting overall gains in U.S. stocks. Ulrich Urbahn of Berenberg said: "The AI trade is recovering on the back of real demand data, rather than relying purely on market sentiment. CoreWeave's third-quarter results beat expectations and it raised its full-year outlook." He noted that valuations of related stocks have fallen significantly and investors are buying back positions they had previously reduced. Conca said the current stock market rally is spreading from AI-related stocks that led the market over the past few years to a broader range of sectors. Value sectors and European markets are attracting new inflows. He added that corporate earnings growth remains strong enough to continue supporting stocks even as valuations in some AI segments come under pressure.
In other markets, international oil prices ended a two-day losing streak, with Brent crude rising back above $93 per barrel. A senior Iranian official ruled out the possibility of shipping enriched uranium out of the country, indicating that major differences remain between the United States and Iran.
50 Basis Point Hike Still Under Discussion
Due to the U.S. Veterans Day holiday, the U.S. Treasury spot market was closed on Wednesday, following a selloff on Tuesday. Asian bond markets also came under pressure, with the Japanese 10-year government bond yield rising 10 basis points to 2.793%. In contrast, the eurozone bond market stabilized, with the German 10-year benchmark yield roughly flat at around 3.3%. Data released on Tuesday showed that U.S. core inflation rose 0.3% month-on-month in October, above the market expectation of 0.2%. Before the data was released, Federal Reserve Governor Christopher Waller had said that if core inflation reached 0.3%, he would consider supporting a 50 basis point rate hike at the next policy meeting in December. Dallas Fed President Logan said the Fed needs two more rate hikes; Chicago Fed President Goolsbee warned that there is a "real inflation problem"; and Philadelphia Fed President Paulson called for gradual rate increases. A series of hawkish remarks drove a sharp repricing of federal funds rate futures. Currently, the market is largely certain that the Fed will raise rates by 25 basis points in December, while putting the probability of a 50 basis point hike at about 10%. By mid-next year, the market has fully priced in a cumulative 75 basis points of rate increases. Andrew Lilley, chief rate strategist at Australian financial institution Barrenjoey, said: "This Fed is finally starting to do what any other Fed would do in this situation, which is to raise rates, and to raise them quickly." He added: "I think at least four or five officials will want to take this action (a 50 basis point hike)... Therefore, we cannot rule out this possibility."
Dollar Strengthens
Repricing of rate expectations pushed the dollar higher. The dollar rose 0.5% on Tuesday and gained another 0.2% on Wednesday, rising to 102.45 against major currencies. The Australian dollar, which is more sensitive to risk sentiment, stabilized. Earlier, the Australian dollar had fallen nearly 0.9% as traders bet that the Reserve Bank of Australia may have ended its tightening cycle after five rate hikes this year and will begin cutting rates in 2027. Gold rose 0.4% to $4,049, recovering some ground after falling 2.6% in the previous session. Earlier, a stronger dollar had pressured precious metals.
Hedge Fund Veteran Warns: Crowded "Dispersion Trade" Could Become a Market Volatility "Amplifier"
As global technology stocks swing sharply, a popular Wall Street trade that profits from stock dispersion is facing the risk of markets re-synchronizing. Will Bartlett, CEO of Parallax Volatility Advisers, warned that the equity dispersion trade has become a "time bomb." He said: "The dispersion trade is a ticking time bomb. It is only a matter of time before it truly explodes." The top Wall Street hedge fund manager said investors enjoying the golden age of equity dispersion trades should prepare for potential losses if the market suddenly turns.
Bank of America Pours Cold Water: Don't Count on the S&P 500 in 2027, It Is the World's Most Crowded Trade
Bank of America analysts believe the S&P 500 may struggle to serve as a foundation for long positioning in 2027. Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said on a program: "We are not particularly bullish on this index. I think the index itself carries some risk. Another issue that worries me is that over the past 30 to 40 years, the S&P has recorded net fund inflows every year, and we have never experienced a market environment with net outflows from the index. So I have some concerns about this, because investors are now quite saturated with equities across asset classes. Look at individual investors, look at asset owners—what is the world's most crowded ticker? It is the S&P 500."
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New cloud provider CoreWeave surged 15%. The company reported better-than-expected revenue and a smaller loss than the market had estimated. NVIDIA (NASDAQ: NVDA) rose 5%, recovering some ground after a sharp selloff earlier this week. Entering Wednesday's trading session, the stock had fallen nearly 10% on a weekly cumulative basis this year. NextNav, a provider of GPS terrestrial backup positioning system services, rose 9%. The company's third-quarter revenue nearly doubled year-on-year, while its quarterly loss per share narrowed to $0.04 from $0.12 last year. The company disclosed that cash on hand rose to $264.1 million as of September 30 from $152.1 million as of December 31 last year. Talen Energy rose nearly 5% in pre-market trading. The power producer and energy infrastructure company signed a seven-year agreement to sell 750 megawatts of generation capacity to an investment-grade counterparty.
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