AI spending worries weigh

Macroeconomic/ geopolitical developments

• US stock markets finished the week mixed, with the Nasdaq Composite falling 0.71% and the S&P 500 declining 0.47%, while the Dow Jones Industrial Average gained 0.41%, extending its winning streak to three weeks. Small cap and value stocks outperformed, with energy and healthcare among the strongest sectors.

• Technology shares came under pressure as investors questioned whether heavy AI investment will deliver sufficient returns, pushing the Nasdaq lower and semiconductor stocks down around 4%. Upcoming results from Microsoft, Alphabet and Amazon will be closely watched for evidence that AI spending is translating into sustainable growth and profits.
• US Treasury yields declined as investors sought safer assets amid concerns over technology valuations and the outlook for AI investment, with the 10 year yield falling to around 5.00%. However, persistent inflation and rising oil prices could limit the relief from lower yields, keeping the Federal Reserve’s next decision firmly in focus.

• Oil prices climbed to their highest levels in around six months, with Brent crude rising approximately 6% over the week to $116.72 per barrel amid escalating Middle Eastern tensions. Continued threats to energy infrastructure and uncertainty surrounding the Strait of Hormuz have heightened concerns about supply disruptions and renewed inflationary pressure.
• Corporate earnings were mixed, with Meta reporting strong revenue growth but attracting concern over its AI spending, while Tesla faced weaker profitability. Meanwhile, US business activity remained solid in October, although rising selling prices highlighted the ongoing challenge of balancing economic growth with persistent inflation.

• Investors will focus on results from major technology companies, including Alphabet, Microsoft and Amazon, looking for signs that AI investment is generating meaningful returns. The Federal Reserve’s interest rate decision and the latest US PCE inflation report will also be key, as markets assess the outlook for monetary policy amid persistent price pressures.

Global financial market developments

• US and global equity averages were mixed for the week.
• US and European bond yields were lower on the week.
• The US Dollar Index was modestly lower on the week.
• Gold futures were lower on the week.
• Oil futures prices rallied to a six-month peak.

Key this week

Central Bank Watch: It is a busy week for central banks, with the Federal Reserve taking centre stage on Wednesday with its Monetary Policy Statement, Interest Rate Decision and Press Conference. Other key events include the Bank of Canada’s policy announcement on Wednesday, the European Central Bank’s decision on Thursday and the Bank of Japan’s announcement on Friday, with investors closely watching for any signals on the future direction of monetary policy.

Macro Data Watch: The main macro data releases this week are the US PCE inflation data and US GDP data both on Thursday. Some other releases of note are Japanese CPI, Eurozone GDP and German CPI all being released on Friday.

Earnings Watch: The Q3 US earning season advances this week with Alphabet and Microsoft posting earnings on Wednesday and Amazon following on Thursday (three of the Magnificent Seven). Additionally, there are results from Visa, Coca-Cola, Eil Lilly, Mastercard and Intel throughout the week.

Steve Miley (The Market Chartist)

Editor in chief

Steve Miley is the Market Chartist and has 32 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued