AI-led rally flips to selloff

General market commentary

US equities surrendered strong early gains on Thursday and closed near the session lows as sentiment deteriorated throughout the day. The technology heavy Nasdaq fell more than 2 per cent, while the S and P 500 declined about 1.6 per cent and the Dow Jones Industrial Average slipped 0.8 per cent. This reversal came despite robust quarterly results from Nvidia, which initially lifted market confidence. A sharp pullback in bitcoin, a rise in Oracle credit default swaps and heightened volatility contributed to the weaker tone. Most sectors finished lower, led by technology, consumer discretionary and materials, while consumer staples was the only gainer.

Market pressure intensified after a mixed United States September jobs report signalled a cooling labour market but did little to clarify the outlook for December interest rate decisions. Nonfarm payrolls rose more than expected, yet the unemployment rate edged higher. Treasury yields declined and the volatility index jumped to its highest level since April, reflecting growing uncertainty. Major equity names including Datadog, Micron, Boeing and Nvidia were among the steepest fallers on the day.

Latest market and economic update

Asian equities fell sharply on Friday as weakness in global technology shares and concerns over stretched artificial intelligence valuations weighed on sentiment after a muted response to Nvidia’s results. Tech heavy markets in South Korea, Japan and Hong Kong led declines, while regional shares also weakened on sticky Japanese inflation and fading expectations for a United States rate cut.

US equity futures steadied overnight following a volatile session, as markets absorbed strong September payrolls and lower US tariffs on Brazilian agrigoods, reinforcing expectations that the Federal Reserve will likely hold rates in December. In after-hours trade, Nvidia remained flat, while broader tech and other sectors showed little movement amid ongoing AI valuation concerns.

European equities closed higher on Thursday, with Germany’s DAX up 0.6% and France’s CAC 40 rising 0.3%, boosted by strong Nvidia earnings. Infineon and ASML gained on robust tech demand, while Schneider Electric and Siemens Energy rose on AI and industrial optimism. BNP Paribas jumped after raising capital targets.

The U.S. dollar steadied after sharp overnight gains, supported by hawkish Fed minutes that dampened hopes of a December rate cut. The Dollar Index held around 100.150, while EUR/USD slipped 0.1% to 1.1525, reflecting the euro’s mild weakness after softer-than-expected German producer prices. Sterling and yen showed mixed moves amid broader risk sentiment.

Oil prices fell sharply in Asian trade this morning, heading for a weekly decline as investors weighed a U.S.-Russia-backed Ukraine peace proposal and looming sanctions on Russian oil giants. Brent and WTI lost around 1 per cent, pressured by resumed Russian exports, broader supply concerns, and weaker demand support following stronger-than-expected U.S. jobs data.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Walmart raised its annual forecasts after strong Q3 results, driven by surging online sales and growth among higher-income households, particularly Walmart+ subscribers. U.S. comparable sales rose 4.5%, revenue climbed 5.8% to $179.5 billion, and adjusted EPS is now $2.58–$2.63. The company will move its listing to Nasdaq, reflecting its AI-driven, tech-focused strategy.

Siemens Energy outlined its turnaround plan for Siemens Gamesa, targeting breakeven in 2026 and strong cash positivity by 2028. CEO Christian Bruch highlighted the wind division as the biggest profit lever for 2026. The company also plans 30–50% expansion in transformer and gas turbine capacity, selective small acquisitions, and a €6 billion share buyback programme.

IBM and Cisco plan to link quantum computers over long distances, aiming to demonstrate feasibility by 2030 and enable a quantum internet. The project requires new technologies, including microwave-optical transducers, developed with universities and labs. Open-source software will integrate the system, with both firms collaborating on a unified roadmap.

Germany’s cartel office is considering proceedings against SAP after Celonis filed a complaint over data access in SAP systems. The authority confirmed receiving the complaint and noted that other companies have raised similar concerns, suggesting SAP may be making it difficult for customers to access and process data for analysis purposes when requested.

Gap exceeded Wall Street expectations for third-quarter comparable sales, driven by strong marketing and demand for Old Navy and Banana Republic apparel. Collaborations with Disney, Netflix and Universal, alongside campaigns targeting Gen Z, boosted engagement. Revenue rose 3% to $3.94 billion, while Athleta fell 11%. The company maintained its tariff impact forecast.

Intuit forecast second-quarter revenue growth of 14–15%, above Wall Street estimates, driven by strong demand for its AI-powered tools, including TurboTax, QuickBooks and Credit Karma. The company partnered with OpenAI to enhance its AI agents. First-quarter revenue rose 18%, while adjusted EPS exceeded estimates. A 15% higher quarterly dividend of $1.20 was approved.

Renk Group raised its 2030 organic revenue target to €2.8–3.2 billion, with up to €1 billion from acquisitions, and set a new EBIT margin goal of over 20%, implying €575–690 million adjusted EBIT at the midpoint. Shares fell 3% as near-term guidance saw only minor tweaks, with 2025–2028 revenue and EBIT projections largely unchanged.

Valeo unveiled its Elevate 2028 plan, targeting €22–24 billion in sales, a 6–7% operating margin, and at least €500 million free cash flow by 2028, while lowering leverage below 1.0x EBITDA to pursue an investment-grade rating. The strategy focuses on steady profit growth, higher cash generation from 2025, and a return to sales growth from 2027.

Another fire broke out on Thursday at Novelis’ aluminum plant in Oswego, New York, which supplies Ford’s F-150 trucks, roughly two months after a previous blaze disrupted production. All staff were safely evacuated, and the fire is now under control. It remains unclear if this incident will delay the plant’s planned year-end restart.

UBS remains bullish on AI, expecting global AI capex to rise 35% to $571 billion in 2026 and reach $1.3 trillion by 2030. The brokerage highlights strong tech cash flows, robust monetisation, and productivity gains, noting current financing is healthier than the dotcom era. AI-driven innovation underpins ongoing optimism despite recent market caution.

Morgan Stanley rates Amazon a top pick, seeing 40%+ upside from AWS momentum into 2026. Analysts note a 50% PEG discount and project 25%+ AWS revenue growth, driven by contracted workloads and clients like OpenAI. The $38 billion OpenAI contract and non-backlog growth support multiyear demand, despite timing and capacity risks.

Piper Sandler reaffirmed an Overweight rating on Tesla with a $500 target, noting its full self-driving (FSD) software may already surpass average U.S. drivers after a flawless robo-taxi test at Fremont. The firm highlighted FSD’s advancement, robo-taxi potential, and Tesla’s growing stationary storage business, leaving broader estimates largely unchanged.

UBS has raised its global high-bandwidth memory (HBM) demand outlook for 2025 and 2026, citing stronger Nvidia and AMD procurement and expanding TSMC capacity. HBM end-consumption is expected to reach 17.3 billion Gb in 2025 and 28 billion Gb in 2026. SK Hynix leads gains with HBM4 shipments boosting ASPs, while Samsung benefits from improving DDR and NAND pricing.

Wedbush analyst Daniel Ives says the AI boom is not a bubble but the start of a decade-long transformation. Nvidia’s strong quarter, with 65% revenue growth guidance and accelerating demand for Blackwell and Rubin chips, underscores this structural shift. Ives sees Nvidia as central to the AI economy and expects $550–600 billion in Big Tech capex in 2026.

UBS expects global equities to rise around 15% by the end of 2026, supported by broad earnings growth and a constructive macro backdrop. U.S. tech, led by the Magnificent 7, remains central, while European equities are upgraded to “Attractive” on improving profits, supportive policy, and investor positioning. Key sectors include industrials, technology, and utilities.

Upcoming data and events

Among the data to be released today, the US will report manufacturing and services PMI flash readings, Michigan consumer sentiment and inflation expectations, and wholesale inventories. The UK will publish retail sales and PMI readings, while Germany releases its HCOB manufacturing PMI flash. No major companies are reporting earnings, while US Federal Reserve speeches may influence markets.

This information is provided solely for educational and informational purposes and should not be construed as investment advice, advice on specific investments or investment decisions, tax advice, legal advice, or any other form of professional or regulatory advice. The information does not take into account your personal circumstances and is provided to you on the express understanding that it does not constitute advice and should not be relied upon in making any investment decision. Investing in financial instruments involves risk. You should conduct your own research before making any investment decisions and seek the assistance of a licensed financial advisor if you are unsure. No person should act on any opinion or information contained in this document without first obtaining appropriate professional advice. Calamatta Cuschieri Investment Services Limited does not accept liability for any actions, proceedings, costs, demands, expenses, damages, or losses suffered as a result of reliance on the information herein.