Markets may be nearing a tipping point
SPY•An AI-related selloff and escalating geopolitical tensions unsettled global markets this week. US CPI rose 0.6% last month and 3.7% year over year, while Brent crude topped $106 a barrel before retreating.
1. AI worries hit markets
A significant AI-related selloff hit global markets as investors worried that higher interest rates could make funding harder for companies amid increasingly complex financing in the AI ecosystem. The Philadelphia Semiconductor Index fell for seven straight sessions through Thursday, while South Korea’s KOSPI dropped almost 8% on Thursday before rising more than 3% on Friday. CoreWeave shares fell 15% on Wednesday, and its bonds due 2032 entered distressed territory.
2. Inflation and rate concerns
US CPI rose 0.6% last month and 3.7% in the 12 months through September, largely because of higher gasoline prices. Core inflation increased 0.3% monthly, slightly above expectations. Bets on another Federal Reserve rate hike this month briefly rose to roughly 50% from roughly 25% before the CPI release, then receded.
3. Geopolitics and earnings ahead
Brent crude rose above $106 a barrel on Wednesday amid escalating attacks in the Middle East, then pared some gains. The article also describes renewed uncertainty over the Russia-Ukraine conflict and a diesel agreement whose cited volumes were small. Analysts expect S&P 500 company earnings to rise more than 30% year over year in the third quarter, with two-thirds of the growth coming from technology and AI. Meta, Tesla and IBM are set to report next week.
