The Nasdaq experienced its most significant weekly setback since early April, dropping approximately 3% over the week and falling 0.21% on Friday. This decline comes as investors reassess the sustainability of the artificial intelligence (AI) rally that has driven tech stocks to new heights in recent months.

AI Optimism Meets Reality

The tech-heavy index had surged more than 50% since April, largely fueled by enthusiasm surrounding AI advancements. However, recent comments from Nvidia CEO Jensen Huang warning that China could outpace the United States in the AI race have sparked concerns among investors.

Market Performance Overview

Here's a breakdown of the market performance:

Chip and tech-related stocks were among the biggest losers for the week, reflecting the broader concerns in the tech sector.

Macroeconomic Factors

Several factors contributed to the market's movements:

1. Government Shutdown Negotiations: Reports of progress in congressional negotiations regarding the federal government shutdown provided some support to the Dow Jones and S&P 500.

2. Consumer Sentiment: U.S. Treasury yields declined as consumer sentiment fell to 50.3, the lowest since June 2022, due to shutdown concerns.

3. Global Trade: China's exports contracted by 1.1% in October, marking the worst performance since February, potentially impacting global economic outlook.

Cryptocurrency and Commodities

Despite the tech sector's struggles, other markets showed mixed results:

• Bitcoin: Traded up 2.09% at $103,197.07, although it faced weekly losses.
• Oil: Prices recovered with U.S. crude settling at $59.75 and Brent at $63.63.

As the market grapples with these various factors, investors are closely watching for signs of stabilization in the tech sector and broader economic indicators that could influence future market directions.

US stock markets closed on a positive note, with the Nasdaq Composite reaching a new record high, driven by growing expectations of potential Federal Reserve rate cuts following recent jobs data. The tech-heavy index outperformed its peers, gaining 0.45% and setting a fresh all-time high.

Market Performance

• Nasdaq Composite: Rose 0.45%, reaching a record high
• S&P 500: Increased 0.20%
• Dow Jones Industrial Average: Gained over 100 points

The rally was primarily fueled by optimism surrounding the Federal Reserve's potential rate cuts, with tech stocks leading the charge on the Nasdaq.

Treasury Yields and Dollar Index

• Treasury yields continued their upward trajectory
• The two-year yield hit its lowest level since 2022
• US Dollar index fell below 98

Market Sentiment

Investor optimism is being driven by several factors:

• Expectations of slower economic growth
• Anticipated moderate inflation increases
• Falling bond yields
• Hopes for accelerated rate cuts by the Federal Reserve

Historical data suggests that the S&P 500 typically gains about 1.20% in months when the Fed implements rate cuts without economic contraction, further bolstering market sentiment.

Upcoming Catalysts

Investors are closely watching two key economic reports this week:

1. Producer Price Data: Expected on Wednesday
2. Consumer Price Inflation (CPI): Scheduled for Thursday
   • CPI is projected to rise 0.30% month-on-month

These reports could significantly influence the Federal Reserve's decision-making process regarding future rate cuts.

Analyst Projections

While September rate cuts appear likely, the pace of future cuts will largely depend on incoming inflation data. Most analysts maintain a positive outlook for US equities:

• Some projections see the S&P 500 reaching 7,000 by year-end
• However, JPMorgan warns that Fed policy shifts could potentially trigger a market sell-off

Tech Sector Focus

The tech sector continues to be a key driver of market performance:

• Apple's upcoming event is generating significant interest
• Analysts see limited upside for Apple stock after it added $430 billion in market capitalization since August

As markets continue to rally on rate cut expectations, investors will be closely monitoring economic data and central bank communications for further clues on the future direction of monetary policy and its impact on equity markets.