The NASDAQ hit a new all-time high of 23,101 at the open, helped once again by semiconductors. The evolving AI narrative is that we will hear bullish sentiments about the adoption rate of AI solutions during the 3rd quarter earnings calls.
Another evolving AI concern is the massive electrical power that data centers demand, as well as a significant amount of water for cooling. We’re seeing communities pushing back on approving the construction of these huge centers in their backyard, especially those expecting to employ a small nuclear plant for electricity. This makes the timing of full deployment more speculative. At the same time, it’s not clear what the systems will do differently once built than the software solutions available today.
Stocks are repeating the trend of a meaningful pullback after the initial bullish open. The VIX is remarkably stable after overnight volatility, and at 16.4 is roughly where it’s been for the last 3 weeks as the market motored higher. Today, the only sector in the red is energy, down 1% on lower oil prices. For the trailing week, the only sectors in the green are tech and utilities, but that’s enough to leave the NASDAQ and S&P in the green.
There’s no progress on the government shutdown. The Senate voted down the 6th proposal yesterday. The lack of government economic data has left the marginal sources, like the Michigan consumer survey, getting more attention, whose numbers were mostly flat today.
are noticeably lower today. The US 10-year is down 4 bps to 4.11%, the 30-year down 5 bps to 4.68%, the 2-year down 1.6bps to 3.58%. The long end of the yield curve is approximately where it was a month ago, before the Fed cut, while the short end is lower, reflecting expected rate cuts. The lack of movement in the long end has taken a hit out of homebuilding stocks, which were anticipating meaningfully lower mortgage rates. Bets for October and December cuts are stable today at 96% and 80%.
On the commodity front, gold has rebounded to $4K and silver is up 2.8% to $48.50K. Copper is flat but up 12% in the month, on expected demand in building power supply. Crude oil is down 2%, breaking below $60/bbl, the lowest since May, before rebounding on optimism of peace in the Mideast. Natural gas continues its slow decline, now down 5% in a week. Weaker energy prices are helpful with inflation. The US dollar index is holding on to 99, a 3-month high, though still down 10% YTD, one of the biggest drops on record.
Tariffs are back on the front burner. Stocks took a dramatic turn down right at 11:00 am on the news that Trump had proposed massive new tariffs on China due to their new restrictions on selling rare earth metals to the US. Dip buyers are about to be tested.
Nevertheless, the trend remains positive.