Lower oil prices lift Dow Jones futures as inflation concerns ease

A mixed trend prevails in US index futures ahead of this week’s inflation readings and earnings announcements from AI companies.
Pressure weighs on Nvidia after its board opens a probe into a reported affair involving CEO Jensen Huang and alleged espionage targeting.
Investors weigh the prospect of Democrats seeking tighter AI rules and curbs on data centre expansion.

A mixed performance marks US index futures during Monday’s European trading hours: Dow Jones futures rise 0.65% to around 51,720, while S&P 500 futures add 0.30% to around 7,420. Nasdaq 100 futures, by contrast, slip 0.12% to around 27,050.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Lower energy prices and concerns over inflation leave US stock futures trading without a clear direction. Crude oil retreated following remarks by US President Donald Trump that additional military action against Iran is "highly unlikely," provided progress continues on Iran’s nuclear programme and the Strait of Hormuz stays open. Trump also conceded that the unpopular Middle East conflict had earlier pushed up energy costs and contributed to recent Republican losses in the midterm elections.

Fresh uncertainty at Nvidia adds to investors’ concerns as they prepare for this week’s key inflation readings and results from leading AI-related technology companies. The company is expected to stay squarely in focus after its board commissioned an independent investigation into allegations that CEO Jensen Huang had been targeted in a Chinese honey trap operation.

This week’s results calendar includes CoreWeave, Cisco, and Applied Materials, whose announcements will provide more indications of demand across the AI sector and its growth prospects. Alongside these releases, investors are closely watching Tuesday’s US Consumer Price Index (CPI) report and Friday’s Producer Price Index (PPI), seeking greater clarity on the Federal Reserve’s forthcoming interest rate decisions.

Concerns that Democrats might seek tougher AI regulation and potentially curb data centre expansion largely fuelled last week’s broad Wall Street sell-off. The Dow Jones Industrial Average shed 0.93%, while the S&P 500 lost 2.68% and the technology-heavy Nasdaq Composite declined 3.37%.

Why are Fed rate hike expectations holding despite recent data?

Further tightening this year is already firmly signalled by the Fed’s own projections, according to analysts at Commerzbank Research. As they point out, “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year,” adding that “the data released since then are unlikely to have changed that assessment materially.” The analysts believe strong October payrolls, together with inflation that remains elevated, strengthen the argument for a further 25 basis point rise at the December FOMC meeting, consistent with the Fed’s previous guidance.

AI stocks: key questions answered

What does artificial intelligence mean?

At its core, artificial intelligence is an academic field focused on replicating human cognitive functions, logical understanding, perception and pattern recognition in machines. Commonly shortened to AI, the discipline encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. Ultimately, the field aims to develop artificial general intelligence, or AGI: a machine capable of tackling arbitrary problems it has not been trained to solve.

How is AI used in practice?

Artificial intelligence has a wide range of applications, of which generative AI platforms are among the best known. Trained on large language models (LLMs), platforms such as ChatGPT and Google’s Bard respond to text-based queries. Another programme, Midjourney, creates original images from text supplied by users. Some AI systems apply probabilistic techniques to assess an entity’s characteristics or form a judgement about it. For example, Upstart’s lending platform uses an AI-enhanced credit rating system to assess applicants’ creditworthiness, searching the internet for information about their careers, wealth profiles and relationships. Elsewhere, AI draws on extensive databases of scientific research to propose potential new pharmaceuticals for laboratory testing. By gathering and organising information about viewing habits, YouTube, Spotify, Facebook and other content aggregators also use AI applications to recommend personalised content to users.

Which stocks offer exposure to AI?

Semiconductor company Nvidia (NVDA) produces AI-focused computer chips as well as some of the platforms engineers rely on to develop AI applications. Because it supplies the tools required for further AI applications, many supporters regard Nvidia as a picks-and-shovels investment in the AI revolution. A “big data” analytics business, Palantir Technologies (PLTR) holds substantial contracts with the US intelligence community. Those agencies use its Gotham platform to analyse data, identify intelligence leads and support pattern recognition. Major corporations, meanwhile, employ its Foundry product to monitor employee and customer data for predictive analytics and anomaly detection. Microsoft (MSFT) owns a sizeable stake in OpenAI, the creator of ChatGPT, which has yet to go public. OpenAI’s technology has also been incorporated into Microsoft’s Bing search engine.

Could AI fuel another stock market bubble?

The public launch of ChatGPT in late 2022 sparked gains across many AI-linked stocks. In the six months after its release, Nvidia, for example, climbed well over 200%, prompting immediate debate among Wall Street commentators about whether another technology bubble was taking hold. Renowned investor Stanley Druckenmiller, who has held significant investments in both Palantir and Nvidia, argued that bubbles never run for just six months. Should enthusiasm for AI turn into a bubble, he said, extreme valuations would persist for at least two and a half years or longer, as they did during the DotCom bubble of the late 1990s. As of the midpoint of 2023, the best assessment is that the market is not in a bubble, at least for now. Although Nvidia was then valued at 27 times forward sales, analysts projected exceptionally strong revenue growth over the coming years. By comparison, the NASDAQ 100 traded at 60 times earnings at the DotCom bubble’s peak, against 25 times earnings in mid-2023.