US stocks opened mixed on Friday morning. The latest remarks from Federal Reserve Chair Warsh reinforced market expectations that the Fed will keep rates unchanged in October, offering some support to US equities. However, persistent concerns over the sustainability of the artificial intelligence (AI) investment boom weighed on technology stocks, with the Nasdaq 100 on track for a weekly decline of more than 3.5%, ending a four-week winning streak.
As of press time, the S&P 500 was up 0.03%, while the Nasdaq 100 fell 0.52%. Earlier, Warsh spoke during the International Monetary Fund (IMF) annual meetings, and traders maintained their expectation that the Fed will hold rates steady at the end of this month. As a result, the market quickly scaled back bets on a Fed rate hike in October. Data showed that before Warsh's remarks, traders priced in about a 27% probability that the Fed would raise rates at its October 27-28 monetary policy meeting, but after the speech that probability fell below 15%. JPMorgan global market intelligence head Andrew Tyler said Warsh's remarks further reinforced market expectations that the Fed will stand pat in October. The bank continues to focus on selective buy-the-dip opportunities.
Despite easing rate expectations, US stocks still posted a weak overall performance this week. As of Friday morning, the S&P 500 had fallen about 0.8% for the week, after two of the previous three weeks recorded gains. The Nasdaq 100 was down more than 3.5% for the week and was on track to end a four-week rally. Still, the S&P 500 is now only about 1% below its record closing high set on October 6, indicating that despite recent increased volatility, US stocks remain at relatively elevated levels overall.
One of the main reasons technology stocks have come under pressure recently is that investors are beginning to reassess the sustainability of the AI infrastructure investment boom. AI cloud computing service provider CoreWeave (CRWV.US) recently suffered a dual selloff in both stocks and bonds, triggering market concerns about the financing capacity, debt burden and long-term profitability model of emerging AI cloud computing companies. On Friday morning, CoreWeave shares fell more than 6.5% again, with a weekly decline expected to exceed 20%. Dell Technologies (DELL.US) also extended its weakness, falling more than 1% on Friday morning. Over the previous two trading days, the stock plunged 17% cumulatively and became one of the worst performers in the S&P 500 on Thursday.
The chip sector as a whole performed sluggishly. The iShares Semiconductor ETF (SOXX.US), which tracks semiconductor companies, fell more than 1% on Friday morning and was on track for a ninth consecutive trading day of declines. Storage-related companies were hit even harder. Seagate Technology (STX.US) fell more than 4%, while Western Digital (WDC.US) dropped more than 3%. The market is worried that as AI data center construction continues to consume enormous amounts of capital, whether related companies can maintain their previously rapid pace of capital expenditure growth in the future, and whether these investments can generate sufficient commercial returns. Meanwhile, global bond yields remain near their highest levels in nearly 20 years, further increasing the financing cost of AI infrastructure construction. For technology companies that rely on long-term growth expectations to support valuations, persistently high interest rates also mean that the discounted value of future earnings may come under greater pressure.
Although AI-related stocks suffered a selloff, other large technology companies showed relatively steady performance on Friday morning. Tesla (TSLA.US) rose 0.5%, Apple (AAPL.US) gained 0.77%, and Microsoft (MSFT.US) also edged higher. This divergence reflects that investors have not fully retreated from the technology sector, but are paying closer attention to individual companies' profitability, capital expenditure pressure and valuation levels.
As Fed officials are about to enter their routine quiet period this weekend ahead of the monetary policy meeting, the market will lack new official policy guidance. Before the Fed announces its rate decision on October 28, investors will continue to assess the impact of inflation pressure, changes in bond yields and AI investment risks on the stock market. At present, an important question facing the market is what factors can still drive US stocks further higher after the S&P 500 hit a record high on October 6. Although inflation and interest rate risks continue to trouble Wall Street, US corporate earnings performance remains an important factor supporting the stock market. As the third-quarter earnings season officially entered its busiest disclosure period this week, results from multiple companies showed that overall US corporate profitability remains resilient.
Among them, Alcoa (AA.US) rose more than 7% on Friday morning. The company's third-quarter adjusted earnings exceeded market expectations, mainly benefiting from higher aluminum output and rising product prices. Strong corporate earnings partly offset the pressure from high inflation, rising financing costs and AI investment concerns, helping major US stock indexes remain relatively stable amid recent market volatility. However, as AI-related company share prices continue to adjust, investors are raising their requirements for future growth prospects. The market's focus is no longer merely whether AI capital expenditure can continue to expand, but whether the related investments can truly translate into sustainable revenue and profits.
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