Federal Reserve Chair Jerome Powell speaks after October's Fed meeting. Officials remain divided over December's rate decision. Hu Yousong / Xinhua via Getty Images Close Key Takeaways What should the Fed do to fight high inflation while preventing the job market from collapsing? Ask its 12 leaders and get 12 different answers. It's up in the air whether the Fed will lower its key interest rate for a third time in as many meetings in December. The chances of a rate cut were hovering around 50% Tuesday, acco ...

Core Insights - The recent jobless claims data indicates that 232,000 individuals filed for unemployment in the week ending October 18, which is an increase from 219,000 in late September, marking a significant moment as it is the first data released post the government shutdown [1][6]. Economic Implications - The jobless claims figure provides insights into economic trends that were previously obscured during the government shutdown, suggesting that the labor market remains stable without alarming signs for economists [3]. - Forecasters anticipate a modest job growth report from the Bureau of Labor Statistics, indicating that the economy added jobs in September, although job growth has slowed significantly since summer due to various uncertainties, including tariffs and immigration policies [4]. Labor Market Analysis - The overall assessment of the labor market suggests a deterioration, yet it is not on the verge of recession, as noted by Dean Baker, a senior economist [5].

Core Insights - Concerns regarding the profitability of AI investments have negatively impacted tech shares, particularly those of Amazon and Microsoft, which have been downgraded to neutral from buy by Rothschild & Co Redburn [2][3][7] Company Analysis - Rothschild & Co Redburn's analyst, Alex Haissl, stated that there is no longer a bullish case for Amazon and Microsoft, leading to a decline in their stock prices by 2.7% and 4.4% respectively [2][4] - The report indicates that generative AI development costs are significantly higher than the revenue it generates, with capital intensity nearly three times that of early cloud computing [5][6] - Amazon's AWS is viewed as better positioned than Microsoft's Azure for capturing value, but both companies need to demonstrate sustained higher growth and reduced build costs to regain a positive outlook [6][8] Industry Context - The AI rally that previously drove market indexes to record highs is losing momentum due to concerns about valuations and comparisons to the dotcom bubble [3][4] - The market is currently pricing in unrealistic returns based on outdated expectations of cloud economics, which are no longer achievable according to the analyst [6][7]

Core Viewpoint - Nvidia's upcoming earnings report is anticipated to significantly impact the AI sector and broader stock market, with high expectations from investors [1][4][6] Group 1: Market Impact - Nvidia is viewed as a bellwether for the AI industry, and a strong performance could restore confidence in the AI rally that has driven stock prices to record highs [2][4] - The company's market capitalization of approximately $4.4 trillion accounts for about 8% of the S&P 500, indicating that its stock movements will influence a wide range of investors [6][9] - Options pricing suggests that traders expect Nvidia's shares to swing roughly 7% in either direction following the earnings report, indicating potential volatility [5][9] Group 2: Investor Sentiment - There are concerns that elevated stock valuations may have created an AI bubble, making it challenging to impress investors with Nvidia's results [3][4] - Historically, Nvidia's earnings reports have led to a "sell-the-news" effect, with the stock often declining in the immediate aftermath, despite strong results [10][11] - Despite a recent decline of nearly 3%, Nvidia's stock has gained over one-third of its value this year, and many analysts believe there is still room for growth [11]

Core Insights - Klarna's shares have decreased by approximately 30% since its IPO, indicating a challenging post-IPO environment for the company [1][5] - Despite reporting better-than-expected results, Klarna's shares fell 9% due to a wider-than-anticipated adjusted operating loss of $14 million [2][8] - The company reported a third-quarter net loss of $0.25 per share on revenue of $903 million, with gross merchandise value (GMV) reaching $32.7 billion and active users at 114 million, both surpassing analyst expectations [3][4] Financial Performance - Klarna's adjusted operating loss was $14 million, compared to the expected loss of $11.3 million [2] - The third-quarter revenue was $903 million, exceeding analyst consensus [3] - Klarna's GMV for the third quarter was $32.7 billion, also beating estimates [3] Future Outlook - Klarna provided guidance for fourth-quarter revenue between $1.065 billion and $1.080 billion, and GMV between $37.5 billion and $38.5 billion, both better than analyst estimates [3] - The company plans to sell up to $6.5 billion in loans from its Fair Financing portfolio to Elliott Investment Management over the next two years [6][8] Market Position - Klarna's performance reflects the transition of buy now, pay later (BNPL) services from niche offerings to mainstream payment methods for everyday purchases [4] - The company is focusing on expanding its U.S. presence and banking products while managing growth and profitability [4][5]

Company Performance - Home Depot's stock fell 6%, marking the worst performance in the S&P 500, after the company missed third-quarter earnings forecasts and lowered its full-year profit outlook due to a lack of storms and economic uncertainty affecting homeowner remodeling projects [4][9]. - Medtronic's stock rose approximately 5% after exceeding analysts' estimates for fiscal second-quarter sales and adjusted profit, driven by strong demand in its end markets [8][10]. Market Overview - Major U.S. equity indexes declined for the second consecutive day, with the S&P 500 dropping 0.8%, the Dow sliding 1.1%, and the Nasdaq losing 1.2%, ahead of several high-profile earnings reports and delayed jobs data [3]. - Concerns regarding high valuations in the artificial intelligence sector negatively impacted tech stocks, with Western Digital and Micron Technology shares falling 5.9% and 5.6%, respectively [5]. Regulatory Developments - Amazon and Microsoft shares decreased by 4.4% and 2.7%, respectively, following the announcement of investigations by European Union regulators into their cloud computing services [6].

Core Insights - Thiel Macro, the hedge fund founded by Peter Thiel, divested its entire stake in Nvidia during the third quarter, selling 537,742 shares valued at approximately $100 million at the end of September [2][6] - Other significant investors, including SoftBank, have also sold their entire Nvidia stakes, raising about $5.8 billion to invest in OpenAI, indicating a broader trend of divestment among major players in the AI sector [3][6] - Concerns about an AI bubble are growing, with investors pointing to high stock valuations and uncertainty regarding AI's revenue potential, leading some to short Nvidia shares valued at $186 million [4][6] Nvidia's Market Position - Nvidia has been a leader in the accelerated computing chip market and has significantly benefited from the AI investment boom, but recent bearish sentiments could impact speculative AI investments [3][4] - Despite a more than 10% decline in Nvidia shares since late October, Wall Street maintains high expectations for the company's upcoming earnings report, anticipating strong performance driven by substantial investments from major tech firms [9] Investor Sentiment - The sentiment surrounding AI stocks has deteriorated, with debates about inflated valuations and unconventional deals between suppliers and customers contributing to investor caution [6][7] - High-profile investors are increasingly liquidating their positions in AI-related stocks, reflecting a shift in market confidence as Nvidia's quarterly earnings report approaches [7][8]

Core Insights - Bitcoin's price is under pressure, having dropped below $90,000, marking a significant decline of over 25% since its peak in October, contributing to a total market loss of over $1 trillion [2][8] - Despite the downturn in Bitcoin's value, the crypto market continues to introduce new products, including exchange-traded funds (ETFs) and initial coin offerings (ICOs), which may provide alternative investment opportunities for investors [1][3] Market Performance - Bitcoin accounts for more than half of the overall crypto market value, yet the emergence of alternative products, such as spot ETFs for altcoins, could attract investors seeking diversification [4] - Year-to-date performance shows Bitcoin down 2%, while altcoins have had mixed results: Ether down 8%, Solana down 27%, but Binance's native token up 30% and Hyperliquid's token up approximately 60% [9] New Product Launches - Coinbase has launched a revamped ICO platform, facilitating token sales, while CoinMarketCap has introduced a crypto index token [5][8] - The recent acceleration in the launch of spot altcoin ETFs is attributed to new standards set by the Securities and Exchange Commission for coin fund listings [6] Investment Options - Various asset managers are entering the market with new funds, including Fidelity Solana Fund, Bitwise Solana Staking ETF, and others that track both Bitcoin and alternative cryptocurrencies [6]

Core Insights - Home Depot's CEO Edward Decker indicated that contractors are adding fewer projects to their pipelines, and clients are opting for less expensive materials, suggesting a potential fatigue among affluent consumers [2][8] - The company reported a decline in earnings and sales growth for the fiscal third quarter, leading to lowered earnings expectations for the fiscal year due to various economic pressures [5][6] Economic Context - The home improvement sector has become increasingly reliant on affluent consumers, whose spending has been supported by the stock market; however, a market correction or job losses could disrupt this trend [4] - Home Depot noted that high interest rates and elevated home prices have deterred consumers from moving and undertaking home improvement projects, with housing turnover at a potential 40-year low [6][9] Financial Performance - Home Depot's comparable store sales in the U.S. increased by 0.1% year-over-year, with modest price increases contributing to higher average spending [9] - The number of transactions over $1,000 rose by 2.3% year-over-year, indicating that the increase is primarily due to contractors rather than consumers taking on larger projects [10]

Core Insights - Nvidia and Microsoft announced a partnership with AI startup Anthropic, involving a $30 billion cloud computing capacity purchase and a commitment of up to 1 gigawatt of additional capacity [1] - Nvidia and Microsoft will invest up to $10 billion and $5 billion in Anthropic, respectively, with the first gigawatt running on Nvidia's systems [1] - The deal reflects a growing network of relationships among AI software developers, chip manufacturers, and cloud service providers, raising concerns on Wall Street about the sustainability of the AI market [2] Company Developments - Nvidia has committed to invest up to $100 billion in OpenAI, which plans to purchase or lease 10 gigawatts of Nvidia chips, while also acquiring 6 gigawatts from AMD [2] - Nvidia increased its investment in CoreWeave and agreed to purchase all of its excess cloud capacity until 2032 [2] - Shares of Nvidia and Microsoft fell following the announcement of the Anthropic deal, indicating a shift in market sentiment regarding AI investments [6][7] Market Sentiment - The enthusiasm for AI stocks has been tempered by fears of an AI bubble, leading to a decline in tech stock values [3][4] - Concerns have arisen that AI revenue may not soon offset the significant investments made by major tech companies in data centers [4] - Nvidia's stock has lost about 10% of its value since the beginning of the month, while Microsoft is down approximately 9% from its recent highs [7]