Weekly Stock Market Update & SPY Technical Analysis
The AI boom continued to face scrutiny last week as many tout technology stocks’ valuations and question whether or not AI spending will actually pay off. Markets closed the week lower, with high growth technology stocks leading the way down, extending the sell-off that started weeks ago.
Were Nvidia’s earnings not enough?
Nvidia’s earnings report was certainly enough to spark some confidence back in markets, but shortly after the report’s bullish influence, investors began to take profits as other worries surfaced (We’ll get to those in a bit). But as for Nvidia, the company reported record revenue of $57 billion for the quarter, marking a 62.5% increase from the same period last year. The company also saw 65% net income growth, leaving their net margin at 56%. These numbers are absolutely INSANE to witness, especially considering Nvidia has been growing at this pace for years now.
However we must consider that while Nvidia’s earnings are booming, investors are wondering…what about all the companies giving Nvidia this money? Names like Microsoft, Meta, Tesla, Amazon, Oracle…etc. have spent BILLIONS of dollars and continue to do so on Nvidia’s chips and AI data center buildouts, but there haven’t been much evidence of tangible returns on their investments yet. This is where the real valuation questions are really popping up, investors want evidence that all this money spent is worth it. While there’s no real way of telling how quickly we can see ROI on this spending from hyperscalers, there is an argument to be made that artificial intelligence is powerful enough to actually increase efficiency and productivity. For example, a growing portion of Microsoft’s code is now AI-assisted, meaning the company uses AI tools to assist engineers write code. The company has said publicly that AI has already improved developer productivity.
It took around 15 years for the internet and personal computer to really make an impact on productivity, but we all know that they did change our world from business to personal lives. Artificial intelligence is said to begin showing real impact in 5-7 years, as soon as the infrastructure to power it is built and the right tools begin to surface.
Economic worries:
A stronger than expected September labor report came out last week, but markets didn’t welcome the news. It may seem counterintuitive, but investors are actually hoping for softer labor data, since weaker job growth would increase the odds of the Federal Reserve cutting interest rates again in December. Chances of an interest rate cut in December are now at 65% at the time of this writing. The two primary drivers of the stock market in the long term are corporate earnings and interest rates. We already saw record earnings, which is a positive signal, now we just need another rate cut to reignite a rally.
This week’s focus:
This week will be shortened because of the Thanksgiving holiday, so markets will be closed on Thursday and only open half a day on Friday. During the week, we’ll see U.S. Retail Sales data - this is the delayed report from September that we didn’t get because of the government shutdown. The Producer Price Index (PPI) will also be released, which will show inflation changes on the producer front. Retail sales are likely to be slow ahead of the holiday season so the number may not be as relevant, but inflation data is crucial because it’ll help us assess how tariffs have impacted prices. We’ll be updating the numbers in our daily market update
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