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Briefing.com Summary:
*The equity futures market is under pressure as the AI trade has come under pressure (again).
*Meta, Tesla, Lam Research, and IBM are all lower after their earnings results.
*Initial jobless claims continue to run on a solid track.
So far, it has been a struggle for the equity futures market, largely because developments after yesterday's close have exposed some renewed struggles for the AI trade and the geopolitical environment.
The S&P 500 futures are down 73 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 486 points and are trading 1.6% below fair value, and the Dow Jones Industrial Average futures are down 300 points and are trading 0.6% below fair value.
With respect to the AI struggles, we would categorize them in the following way:
- NVIDIA (NVDA) CEO Jensen Huang said demand for neoclouds is "off the charts," according to CNBC, before adding that capital to satisfy the demand is scarce. That is raising questions about growth prospects that have been embedded in certain stock prices. NVDA is down 2.4%.
- Meta Platforms (META), which delivered some impressive earnings results, acknowledged that it may take "hundreds of billions of dollars" to invest in AI. That acknowledgment has caused some concerns about possible dilution for shareholders and misgivings about the timing and viability of monetizing such massive investments. META is down 2.5%.
- Lam Research (LRCX) provided fiscal Q2 guidance that was only in-line with consensus estimates, citing supply chain constraints as a limiting factor. With investors' high growth expectations in the age of the AI buildout, "in-line" is regarded by some as a disappointment; moreover, if LRCX is facing supply chain constraints, others must be as well, raising concerns about being able to live up to the high growth expectations. LRCX is down 9.3%.
- Tesla (TSLA) delivered a Q3 earnings report that featured a 0.2% year-over-year decline in revenue and a cut in its capex budget to $20 billion from $25 billion. That cut has stoked concerns about the ramp in its robotaxi and Optimus robot initiatives. TSLA is down 3.4%.
With respect to geopolitical developments, they line up as follows:
- The New York Times reports that the U.S. and Israel are preparing a plan to strike Iran after the midterm election.
- President Trump told reporters that the U.S. is not negotiating with Iran right now. Something is likely to happen fairly soon. Some think after the election, "but we're gonna see what happens."
- A solution for an end to the war between Ukraine and Russia remains opaque.
- Social, political, and fiscal unrest in France has driven the yield on its 10-yr OAT up 18 basis points to 5.10%.
There will be a lower open today, notwithstanding a drop in Treasury yields and another satisfying initial jobless claims report. The 10-yr note yield is down 12 basis points to 5.03%, even with WTI crude futures up 2.4% to $99.44/bbl.
Lower yields, however, are a function of safe-haven buying, so there hasn't been a springboard effect for stocks, which are also being saddled by a 7.7% decline in IBM (IBM) following its earnings report.
With respect to initial jobless claims, they were down 6,000 for the week ending October 17 to 194,000 (Briefing.com consensus: 200,000). Continuing jobless claims for the week ending October 10 increased by 25,000 to 1.728 million.
The key takeaway from the report is still the same. Layoff activity is low, which is consistent with a solid demand environment for goods and services.
The demand environment for stocks ahead of the open isn't as solid. It is weak, as suggested by the disposition of the equity futures market, which is paying its respects to a sorrowful AI trade.
