Dow Jones futures retreat on disappointing tech earnings and Fed rate-hike bets

Weak earnings and guidance from Amazon, Intel, and Alphabet weigh on broad market sentiment, sending US index futures lower.
3.4% third-quarter GDP growth exceeded forecasts, supported by sustained consumer spending and AI investment.
A 75% probability of a December rate increase is priced into markets after the Federal Reserve left interest rates unchanged.

0.05% lower, Dow Jones futures trade near 52,490, while S&P 500 futures retreat 0.90% to around 7,680 and Nasdaq 100 futures shed over 2% to approach 28,960.

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

Over 7% was wiped off Amazon shares in pre-market trading. The company fell short of earnings and revenue forecasts and announced a substantial rise in capital expenditure to meet growing demand for AI services. Disappointing results from major technology companies dragged US stock futures sharply lower, putting market sentiment under heavy pressure. A subdued forecast for the coming quarter sent Intel down nearly 23%; the company cited weakening PC demand. Even better-than-expected revenue and earnings failed to support SanDisk, which lost nearly 4%.

Thursday’s regular session had already ended in losses before the pre-market selling. The technology-heavy Nasdaq Composite slid 1.38%, while the Dow Jones Industrial Average and S&P 500 declined 0.25% and 0.3%, respectively. A 12.6% plunge in Google parent Alphabet followed weaker search and advertising revenue. That performance deepened investor unease over possible AI-led disruption to its core business.

At an annualised 3.4%, third-quarter US GDP growth exceeded the market forecast of 3.2%, underscoring the broader economy’s resilience. Steady consumer spending and substantial AI infrastructure investment provided the main support. Against this macroeconomic backdrop, financial markets still expect additional policy tightening. The CME FedWatch Tool puts the probability priced in by traders for a 25-basis-point December rate increase at roughly 75%, slightly below the previous day’s 84.2%.

AI equities: key questions

Artificial intelligence: what does it mean?

As an academic discipline, artificial intelligence aims to replicate human cognitive functions, logical understanding, perception and pattern recognition in machines. Known as AI, the field encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. Its ultimate objective is artificial general intelligence, or AGI: a machine capable of solving arbitrary problems without having been trained to address them.

AI applications: where is the technology used?

Artificial intelligence serves a wide range of purposes. Among the best-known examples are generative AI platforms, including ChatGPT and Google’s Bard platform, which draw on training using large language models (LLMs) to respond to text-based questions. User-written text also provides the basis for original images produced by Midjourney. Probabilistic techniques underpin other AI systems that assess an entity’s characteristics or how it is perceived. For example, Upstart’s lending platform assesses applicants’ creditworthiness through an AI-enhanced credit rating system that searches the internet for information on their careers, wealth profiles and relationships. Scientific research databases support another use: generating ideas for potential pharmaceuticals to undergo laboratory testing. To recommend personalised content, YouTube, Spotify, Facebook and other content aggregators deploy AI applications that gather and organise information about users’ viewing habits.

AI stocks: which companies have exposure?

Semiconductor company Nvidia (NVDA) produces AI-focused computer chips as well as some of the platforms engineers use to develop AI applications. By supplying the tools required for further applications of the technology, Nvidia is regarded by many supporters as a picks-and-shovels investment in the AI revolution. “big data” analytics specialist Palantir Technologies (PLTR) holds major contracts with the US intelligence community. Its Gotham platform helps that community analyse data, identify intelligence leads and recognise patterns. Major corporations use its Foundry product to monitor employee and customer data, supporting predictive analytics and anomaly detection. A substantial stake in OpenAI, the privately held creator of ChatGPT, is owned by Microsoft (MSFT). OpenAI’s technology has also been incorporated into Microsoft’s Bing search engine.

200% Nvidia rally: could AI fuel another stock bubble?

Well over 200% was Nvidia’s gain in the six months after ChatGPT’s public launch in late 2022, as a broad rally took hold across AI-linked shares. Wall Street commentators quickly questioned whether another technology bubble was taking over the market. Stanley Druckenmiller, the renowned investor who has held substantial positions in both Palantir and Nvidia, argued that bubbles never last just six months. In his view, if enthusiasm for AI developed into a bubble, extreme valuations would persist for at least two and a half years or longer, as in the DotCom bubble of the late 1990s. By the midpoint of 2023, the best assessment was that the market was not in a bubble, at least for the time being. Nvidia’s valuation then stood at 27 times forward sales, but analysts forecast exceptionally strong revenue growth over the coming years. For comparison, the NASDAQ 100 traded at 60 times earnings at the DotCom bubble’s peak, against 25 times earnings in mid-2023.