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Briefing.com Summary:
*The AI infrastructure trade remains under pressure, led by concerns that the AI buildout phase will slow.
*Qualcomm is down big after a relatively disappointing outlook.
*The initial jobless claims and Q3 productivity reports brought good economic news.
The Democratic Party scored a decisive victory in the midterm election, and that understanding led to some decisive gains (and losses) in the stock market on Wednesday.
The main push point for the gains was a belief that the election outcome could ultimately serve as an expedient for bipartisan agreement on ways to lower the cost of living, which some averred could involve ending the war with Iran and rolling back tariffs.
A secondary push point was the sharp drop in oil prices that flowed partly from the aforementioned speculation and signals that the U.S. would like to refrain from a military response to end Iran's menacing activity in the Strait of Hormuz.
The gains were robust, particularly for components in the Dow Jones Industrial Average, but the optimism was spread around the market. Semiconductor stocks, however, and many of the AI infrastructure companies did not get invited to the rally party. They were left on the outside looking in, having been cast out by concerns that the election result will invite tighter regulation and ultimately slow AI buildout plans.
Those concerns haven't disappeared overnight. The VanEck Semiconductor ETF (SMH) is down 3.7% in pre-market trading. A relatively disappointing outlook from Qualcomm (QCOM), which is down 11.6%, has weighed further on sentiment.
The ongoing weakness for the semiconductor trade is driving an ongoing rotation into lower-beta stocks that are disassociated from the AI trade; hence, the relative strength seen outside the Nasdaq 100 futures.
Currently, the S&P 500 futures are up three points and are trading 0.1% above fair value, the Dow Jones Industrials futures are up 351 points and are trading 0.7% above fair value, and the Nasdaq 100 futures are down 275 points and are trading 1.0% below fair value.
The rotational trade is also being helped by some pleasing economic data.
- Initial jobless claims for the week ending October 31 decreased by 6,000 to 189,000 (Briefing.com consensus: 197,000), which is the lowest level since July. Continuing jobless claims for the week ending October 24 increased by 23,000 to 1.718 million.
- The key takeaway from the report is that there simply isn't much layoff activity. That consideration is an offshoot of a demand environment that is still looked at by employers as being quite solid overall.
- Nonfarm business sector labor productivity increased 3.6% in the third quarter (Briefing.com consensus: 3.1%) following an upwardly revised 2.1% increase (from 1.4%) in the second quarter. Unit labor costs decreased 0.7% (Briefing.com consensus: 1.4%) following an upwardly revised 1.9% increase (from 1.2%) in the second quarter.
- The key takeaway from the report is that there has been a pickup in productivity that has curtailed labor cost inflation. That is a good combination for corporate earnings prospects.
Speaking of earnings, there have been a ton of results since yesterday's close. We will refer you to our Earnings Results and Earnings Guidance Calendar pages for the full rundown.
Some prominent losers after their reports include Expedia (EXPE), Arm Holdings (ARM), Zillow Group (ZG), Dutch Bros. (BROS), Snap (SNAP), and Cava Group (CAVA). On the flip side, Applovin (APP), Unity Software (U), Warby Parker (WRBY), Sunrun (RUN), and Tapestry (TPR) are among the biggest winners.
Earnings are the most important driver of the stock market, but for now (geo)politics and the economy are at the wheel.
