AI rally stalls as Powell signal caution

General market commentary

US equities retreated on Tuesday after a string of record-setting sessions, with investors weighing mixed signals from Federal Reserve officials and fresh macroeconomic data. The Nasdaq Composite shed nearly 1% to 22,573.5, dragged lower by technology and consumer discretionary names, while the S&P 500 slipped 0.6% to 6,656.9 and the Dow Jones Industrial Average edged 0.2% lower to 46,292.8. Semiconductor shares led the pullback in mega-cap tech, with Nvidia dropping 2.8% following concerns that its proposed $100 billion investment in OpenAI could raise antitrust scrutiny. By contrast, the energy sector outperformed, buoyed by rising oil prices, as West Texas Intermediate crude climbed 2.2% to $63.66 a barrel amid escalating geopolitical tensions.

Market sentiment was also shaped by cautious remarks from Fed Chair Jerome Powell, who warned of a “challenging situation” in balancing inflation risks with a softening labour market, reinforcing expectations of further rate cuts this year. Vice Chair Michelle Bowman struck a more urgent tone, highlighting the risk of being behind the curve on deteriorating employment conditions, while other Fed officials cautioned against loosening policy too aggressively. US Treasury yields eased, with the 10-year note at 4.11% and the two-year at 3.6%. Meanwhile, OECD revised its global growth forecast for 2025 higher, citing fiscal support in China and resilient AI-driven investment in the US, though it warned that tariff effects remain a headwind.

Latest market and economic update

Asian equities mostly retreated Wednesday, tracking Wall Street’s pullback amid uncertainty over U.S. interest rates. Japan’s Nikkei slipped on weak PMI data, while Australia’s ASX 200 dropped 1% after hotter inflation dimmed rate-cut hopes. South Korea’s KOSPI slid 1.1%, led by losses in Samsung Electronics and SK Hynix, while Chinese and Hong Kong shares eked out modest gains.

US equity futures were little changed overnight as investors weighed cautious remarks from Federal Reserve officials and concerns over the sustainability of the AI-driven rally. Technology equities faced pressure, with Nvidia, Tesla, Amazon and Oracle pulling back, while Micron Technology saw gains in after-hours trading following strong earnings and an upbeat outlook.

European markets closed higher on Tuesday, recovering from previous losses. The STOXX 50 rose 0.7% to 5,480, while the STOXX 600 gained 0.4% to 556, supported by strong Eurozone PMI data showing fastest private sector growth in 16 months. Consumer discretionary shares led gains, with LVMH, L’Oreal, Adidas, Volkswagen, Stellantis, and Orsted among top performers

The dollar index rose above 97.3 this morning, reversing a two-day slide as Fed Chair Jerome Powell signalled caution over further rate cuts. The greenback strengthened against the euro, which traded around 1.1800, amid uncertainty over the Fed’s policy path. Investors now await the upcoming PCE price index for clearer guidance on inflation and interest rates.

Oil prices rose in Asian trading today, supported by a stalled deal to resume Kurdistan exports, a larger-than-expected US crude draw, and rising geopolitical risks around Russia. Brent climbed 0.4% to $67.88 a barrel and WTI rose 0.4% to $63.68. Market concerns over oversupply persist, but near-term supply disruptions underpin the gains.

Equities on the move

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

Micron Technology forecast first-quarter revenue above estimates, driven by strong demand for high-bandwidth memory (HBM) chips used in AI and data centres. The company expects full-year HBM sales to be sold out, with higher pricing for HBM4 boosting margins. Micron also benefited from a $6.2 billion CHIPS Act grant and reported better-than-expected earnings.

Meta Platforms is launching a translation feature on WhatsApp to facilitate cross-language communication for over 3 billion users. Initially supporting six languages on Android and 19 on iPhone, translations occur on-device to protect privacy. Users can translate individual messages or enable automatic translation for entire chats, covering personal, group, and channel conversations.

Boeing has offered remedies to secure EU approval for its $4.7 billion buyback of Spirit AeroSystems, with a Commission decision now due by 14 October. The deal includes Airbus taking over Spirit’s Europe-focused activities and divestments in Scotland, Malaysia, and Belfast. The EU may seek market feedback before deciding on remedies or launching a deeper probe.

OpenAI, Oracle and SoftBank announced five new US AI data centres as part of the $500 billion Stargate project, aiming to reach 10 gigawatts of capacity. The expansion, creating 25,000 jobs, will see sites in Texas, New Mexico and Ohio, supporting generative AI like ChatGPT, with funding partly via debt-leased chips and partnerships with Nvidia and Microsoft.

Walt Disney announced it will raise US Disney+ prices from October 21, with the ad-supported plan up $2 to $11.99/month and the ad-free tier up $3 to $18.99/month; annual subscriptions rise $30 to $189.99. Bundled Disney+, Hulu, and ESPN+ packages will also increase. This marks the fourth consecutive yearly price hike since Disney+ launched in 2019.

Revolut is exploring the purchase of a US bank or applying for a licence to boost its American presence, while prioritising a long-awaited UK banking licence to launch consumer credit. The $75 billion-valued fintech plans $13 billion global investment by 2030, including $4 billion in Britain, 1,000 new UK staff, and expansion into 30 markets.

Elliott Investment Management, with a $4 billion PepsiCo stake, is urging cost cuts, divestment of weaker brands like Quaker, and a potential spin-off of bottling to boost margins. Some investors back shedding smaller labels but are cautious on refranchising, citing high costs and long timelines. PepsiCo, under pressure amid weak sales and falling shares, is reviewing the proposals.

Vertiv shares fell over 6% after Microsoft unveiled successful tests of a microfluidic cooling system for data centre chips, potentially disrupting the thermal management market. The technology removes heat up to three times more efficiently than cold plates, lowering GPU temperatures by 65% in lab tests, and could pressure Vertiv if widely adopted.

Orsted can resume work on its nearly completed Revolution Wind offshore project in the US after a federal judge blocked the stop-work order. The temporary ruling eases immediate credit downgrade risks but political and regulatory challenges remain. The $9.4 billion project, 80% complete, faces potential cost increases if delays continue.

Germany’s DHL will resume standard business parcel shipments to the US from Thursday, following a four-week suspension due to the suspension of the US “de minimis” exemption for packages under $800. While prices for business customers remain stable, customs clearance and duty costs will now apply to all shipments except private gifts under $100.

Evercore reaffirmed Nvidia as its top pick, raising its price target to $225 after the company’s $100 billion partnership with OpenAI. The deal, covering 10GW of AI infrastructure, positions Nvidia as OpenAI’s key supplier, boosting H2 2026 revenue by $5.5 billion. Analysts highlight strong AI demand, NVLink adoption, and attractive valuation despite hyperscaler capex concerns.

KeyBanc downgraded Lam Research to Sector Weight, citing stretched valuations after a sharp rally, while turning more positive on Applied Materials, raising its target to $220. Analysts said Lam’s earnings may lag chip demand recovery, whereas Applied offers better value. They expect AI-driven demand, 2nm transistor advances, and memory upgrades to support long-term sector growth.

Analysts raised Samsung Electronics’ targets on strong memory and high-bandwidth memory (HBM) demand. Goldman set W96,000 and KB W110,000, citing AI-driven growth, rising DRAM/NAND prices, and HBM expansion. Improved foundry performance and Nvidia HBM supply deals support multi-year profit growth and a favourable risk/reward outlook.

Morgan Stanley raised Nike’s price target to $70 but kept an Equal-weight rating, citing elevated valuation and weaker near-term fundamentals. EPS for fiscal Q1 and Q2 are expected roughly in line with consensus, though second-half estimates may be too high. Analysts noted challenges in NA/EU markets and questioned long-term growth amid a fragmenting sportswear sector.

RBC upgraded Volkswagen to Outperform, highlighting resilience to US tariffs, improving China performance, and cost-cutting at core brands. Skoda and VW Passenger Cars show margin recovery, while China growth and aggressive electrification plans support a €130 price target and positive long-term outlook.

Oppenheimer raised AppLovin’s target to $740, citing strong non-gaming ad growth and higher 2027 revenue and EBITDA forecasts. Increased brand spending, new client sign-ups, and positive retail feedback, alongside AXON Ads Manager expansion and upcoming holiday performance updates, could further boost adoption and revenue.

CoreWeave received upgrades from Melius and Wells Fargo, citing strong AI-driven demand and industry supply constraints. Analysts highlighted the company’s ability to capitalise on the AI build cycle, with NVIDIA committing to purchase unused capacity through 2032, and growing business with major tech firms, including Microsoft and Google, supporting revenue growth.

Baird downgraded Lululemon to Neutral, citing weak near-term growth and margin risks. Revenue in the Americas is now expected to fall 1% to flat in fiscal 2025, while tariffs, markdown pressure, and investment needs may further compress margins in 2026. EPS was cut to $13 and the price target lowered to $195.

Upcoming data and events

The main economic releases in the US today include building permits, new home sales, and EIA crude oil inventories, which could impact housing trends, energy prices, and overall market sentiment.

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