Wall Street Buys The Dip In Stocks After AI Rout: Markets Wrap

At a time when every dip in stocks is perceived as an opportunity, buyers emerged after a brief pullback led by some of the biggest winners of the artificial-intelligence boom. Bitcoin rallied. Bonds fell.While Wall Street didn’t see a buying stampede, equities were able to bounce after a slide that underscored worries over how stretched the market has become and how sensitive it is to unfavorable news. Chipmakers, which bore the brunt of the recent selling, led gains on Wednesday.“For investors with cash on the sidelines, the recent market pullback seems like a good time to buy, especially for investors with a longer time horizon,” said Robert Edwards at Edwards Asset Management. “Earnings are crushing it and growing faster than revenues and that often leads to multiple expansion.”Bonds fell after data showed US services activity expanded in October at the fastest pace in eight months on a swift upturn in the growth of new orders. Meantime, employment at US companies increased, signaling some stabilization in the job market.While the Treasury indicated it’s not looking to boost sales of notes and bonds until well into next year, dealers had widely expected the move.The S&P 500 rose to around 6,800. A closely watched gauge of semiconductors jumped 2.7%, though Advanced Micro Devices Inc.’s outlook underwhelmed investors after an AI-fueled rally.The yield on 10-year Treasuries climbed six basis points to 4.15%. Bitcoin gained 3.5%. The dollar wavered.Concerns about an ever-narrowing cohort of stocks driving the gains have become louder, while a hawkish pivot in Federal Reserve commentary has put a dent in optimism over rate cuts. Technical indicators are increasingly flagging reasons for caution, adding to the drag on sentiment from warnings by Wall Street chief executives about frothy valuations.The recent equity pullback looked healthy after a strong rally, but stocks are still set up for a solid year-end as easing signals from the Fed, strong AI momentum and contained geopolitical risks support sentiment, according to Barclays Plc strategists led by Emmanuel Cau. They expect dips to be bought as positioning is high but not extreme, systematic funds have already de-risked, dry powder remains elevated despite retail flows, seasonality is typically positive and buybacks have resumed.“Some consolidation should not come as a surprise, in our view, especially after a strong run over the past several months,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “While political uncertainty and shifting investor sentiment could inject further volatility into the market, we continue to believe that the fundamentals supporting the rally remain intact.”Hoffmann-Burchardi noted that high valuations do not necessarily signal an imminent correction. Instead, declines are more likely when corporate profit growth disappoints, with forward returns more correlated with changes in earnings expectations over the next 12 months. In addition, the tech sector’s core metrics remain robust.“The 12-month forward price-to-earnings ratios for today’s tech giants are far lower than those at the peak of the dotcom bubble,” she said. “Leading companies continue to report stronger-than-expected demand for AI compute and services, while maintaining robust cash positions and balance sheets.”The key lesson of the last 25 years is that valuations are a function of investor confidence in the stability of the global financial system, predictable economic and corporate earnings growth, and the value of human ingenuity, according to Nicholas Colas at DataTrek Research.“While it has recently become fashionable to call a top in US equity valuations, history says it takes a macro catalyst to change investor perceptions,” he said. We remain positive on US large caps because we do not see a clear and present danger to the current bullish setup for domestic equities.”Meantime, Apollo Global Management Inc. President Jim Zelter warned that the rush of capital into AI and data centers is fueling high valuations and increasing risk for investors.“Whenever you see massive impulse and infusion of capital into a sector” such as AI “you have to think about debt and equity returns on invested capital,” Zelter said Wednesday on Bloomberg TV, in response to a question about whether it’s necessary to hedge exposure to data centers.Earnings growth in US stocks has “broadened across several dimensions” this quarter, allaying concern that it was concentrated in just a handful of big-tech companies, Deutsche Bank AG strategists led by Binky Chadha wrote this week.“Earnings season has been spectacular, the Fed is still likely in a cutting phase, and most money managers are trailing their benchmarks,” said Ryan Detrick at Carson Group. “There are many reasons to expect a strong year-end chase, but we might need a little more choppy action in November first.”Earnings momentum looks set to continue, and the key question now is the sustainability of the US consumer, that’s going to determine whether this momentum can carry through into next year, according to George Maris at Principal Asset Management.“A lot of the strength we’re seeing in markets is being fueled by secular growth in technology, particularly in AI,” he said. “Earnings today are increasingly driven by advanced tech, which has created a very different market dynamic than in past cycles. We’re in a place we haven’t been very often, where innovation and profitability are intersecting in a powerful way.”Corporate Highlights:Advanced Micro Devices Inc., the main contender to Nvidia Corp. in the artificial intelligence chip market, failed to impress investors with its revenue forecast after an eye-popping rally sent expectations soaring.Super Micro Computer Inc. missed reduced estimates for first-quarter sales and profit and gave a disappointing earnings forecast for the current period, reinforcing concerns about its ability to capitalize on demand for AI equipment.Pinterest Inc. issued a weak revenue forecast, a sign that the search platform’s advertising business may not be growing as quickly as expected despite the upcoming holiday shopping season.Alphabet Inc.’s Google and cybersecurity company Wiz Inc. cleared a key hurdle to closing their $32 billion deal, with the US government saying it would wrap up its investigation of the acquisition.McDonald’s Corp. reported faster-than-expected US sales growth last quarter as diners prioritized cheap fast food and pulled back from more premium meals at fast-casual chains.Bank of America Corp., seeking to revive a stock that’s trailing its main US peers this year, laid out a slew of new financial targets — forecasting that earnings per share will rise at least 12% annually over the next several years.After a spate of US regional-bank mergers in recent months, even more are likely as the timeline for regulatory approvals quickens, KeyCorp Chief Executive Officer Chris Gorman said.Humana Inc. kept its full-year guidance unchanged despite reporting better-than-expected adjusted profit for the third quarter.Teva Pharmaceuticals Inc.’s sales of branded medications topped expectations, showing that its strategy to expand into that drug category is working.Bunge Global SA posted third-quarter earnings that beat expectations as it navigates an uncertain export landscape and lingering questions around US biofuels policy.Rivian Automotive Inc. reported a smaller-than-expected loss in a sign of progress as the electric-vehicle maker cuts costs and staff ahead of plans to begin deliveries of a new midsize SUV next year.Sonos Inc.’s new chief executive officer outlined a fresh product strategy after the audio brand reported better-than-expected quarterly revenue, the latest in the company’s effort to turn itself around following a disastrous app release last year.Novo Nordisk A/S trimmed its forecast for a fourth time this year on lagging sales of its blockbuster drugs Wegovy and Ozempic, underscoring the urgency facing its new chief executive.BMW AG said demand for the first model in a new generation of vehicles is exceeding expectations as the luxury-auto maker steps up the fight to meet growing competition in China.Europe’s reliance on imported drug ingredients is as dangerous as its dependence on rare earths, according to Fresenius SE Chief Executive Officer Michael Sen, who urged governments to accelerate plans to rebuild local production.Marks & Spencer Group Plc expects profit in the second half to rebound to at least last year’s level as the British retailer revealed the extent of a costly cyberattack in April that severely interrupted sales.Orsted A/S confirmed its full-year profit guidance, seeking to reassure investors of its financial stability after a weak third quarter.Vestas Wind Systems A/S announced a new share-buyback program supported by a strong orderbook for onshore turbines.Abu Dhabi National Oil Co. is poised to win conditional European Union approval for its €12 billion ($13.8 billion) takeover of Covestro AG after it allayed competition concerns over the deal.Some of the main moves in markets:StocksThe S&P 500 rose 0.4% as of 11:02 a.m. New York timeThe Nasdaq 100 rose 0.6%The Dow Jones Industrial Average rose 0.1%The Stoxx Europe 600 rose 0.3%The MSCI World Index rose 0.2%Bloomberg Magnificent 7 Total Return Index rose 0.7%The Russell 2000 Index rose 0.9%CurrenciesThe Bloomberg Dollar Spot Index was little changedThe euro was little changed at $1.1479The British pound rose 0.2% to $1.3041The Japanese yen fell 0.4% to 154.25 per dollarCryptocurrenciesBitcoin rose 3.5% to $103,766.51Ether rose 5.9% to $3,403.2BondsThe yield on 10-year Treasuries advanced six basis points to 4.15%Germany’s 10-year yield advanced two basis points to 2.67%Britain’s 10-year yield advanced five basis points to 4.47%The yield on 2-year Treasuries advanced five basis points to 3.62%The yield on 30-year Treasuries advanced six basis points to 4.73%CommoditiesWest Texas Intermediate crude rose 0.4% to $60.82 a barrelSpot gold rose 1.2% to $3,980.12 an ounce

Wall Street Buys The Dip In Stocks After AI Rout: Markets Wrap

The yield on 10-year Treasuries climbed six basis points to 4.15%. Bitcoin gained 3.5%. The dollar wavered.

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Wall Street Buys The Dip In Stocks After AI Rout: Markets Wrap

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