Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Wall Street experienced a wild rollercoaster ride on Thursday, opening sharply higher on another set of strong results from artificial intelligence giant Nvidia, only to end deep in the red as investors reassessed that optimism and mixed signals from the first U.S. jobs data since the government shutdown ended.

In my column today I look at the warning signs that Nvidia's results flagged, which may deepen the skepticism around tech and AI that has emerged in recent weeks. It all goes back to whether the vast investment in AI infrastructure will ultimately turn a profit.

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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Well, that didn't last long

Wall Street's price swings on Thursday were historic. The S&P 500 opened up almost 2%, only to close 1.6% lower. Analysts note that the index rarely ends down as much as that after opening so strongly. April 2020, after the pandemic crash, and April this year, following the 'Liberation Day' crash, are two recent examples. 

But in both these instances, the market was around 20% off its then highs, so had plenty room to recover. Now, the index is barely 5% off its October 29 peak, an indication there may be more downside potential. We could be at an inflection point - the S&P 500 and Nasdaq both closed right on their 100-day moving averages.

* U.S. jobs fog gets thicker

Everyone craved the release of U.S. economic indicators - especially the jobs numbers - to lift the data fog, but the September payrolls report on Thursday has only muddied the picture even more.

The unemployment rate rose to a four-year high of 4.4%, but job growth was a strong 119,000, especially when the 'breakeven' level is around 50,000 or less. On the other hand, the rolling pace of job growth recently is the lowest this century outside recessions. On top of that, October's payrolls will now be combined with November's data and released on December 16, after the Fed's next meeting.

* Safe haven, where art thou?

Given how choppy U.S. stock markets were on Thursday - a historic peak-to-trough swing and the highest VIX close since April - the lack of any real rally in the traditional 'safe haven' assets is intriguing.

Gold and the Swiss franc ended the day flat, the yen fell to new lows, while U.S. Treasuries rose in price but not by much - the ten-year yield only fell 3 basis points. Friday's session will be illuminating, as investors close out a bruising week and position for next week which will be marked by the U.S. Thanksgiving holiday and month-end positioning.

Nvidia once again delivered a resounding earnings 'beat' on Wednesday, which may initially dampen some of the smoldering tech bubble fears. But, paradoxically, the $5 trillion company's latest figures actually highlight many of the AI concerns that have been roiling markets recently.

On the surface, the headline numbers are astonishing. The chipmaker's revenue in the third quarter was a record $57 billion, up 62% from a year earlier, and net profit rose 65% on the year to a record $32 billion.

Nvidia's forecasts are even more bullish, with revenue expected to rise to $65 billion in the fourth quarter, higher than analysts' average estimate of around $62 billion. Figures like that suggest the global artificial intelligence leader's cash-generating powers are as strong as ever. 

 Nvidia's shares jumped 5% in extended trading after the market close on Wednesday, adding around $225 billion to the firm's market cap in a matter of minutes. 

"Blackwell sales are off the charts, and cloud GPUs are sold out," CEO Jensen Huang said, referring to two types of Nvidia chips. "AI is going everywhere, doing everything, all at once."

That's pretty exuberant language for a press release. And considering the growing fears about AI capex indigestion, it may be bordering on irrationally exuberant.