Equity Futures Signal Tech Sector Rebound
Equity futures indicate a stronger opening for major indices on Monday, reversing the sell-off that characterized the end of last week. The Nasdaq 100 is projected to gain nearly 1%, while the S&P 500 is expected to rise by half a percent.
The recovery follows significant losses for major technology companies last week. Alphabet shares sank more than 12% on Thursday and failed to recover on Friday after reporting earnings misses. Intel’s stock price fell nearly a third in a single trading session due to similar earnings disappointments.
Both Alphabet and Intel are poised to claw back some of these losses, contributing to the anticipated higher market open later today. However, the FTSE 100 is expected to open down as investors step back into the tech trade after last week’s volatility.
Oil prices have contributed to improved market sentiment, with Brent crude down by nearly 3%. This decline in energy costs supports broader economic indicators as markets digest a slew of economic data on both sides of the Atlantic.
US Midterm Elections and Diplomatic Shifts
The week ahead features the US midterm elections, which will serve as a critical test for political sentiment. Reports indicate that President Trump is rolling back on his previous idea to strike Iran after the midterms and is willing to give diplomacy more time to work towards a resolution of the conflict.
FXStreet reported that this diplomatic shift may come too late to save Republicans from a drubbing in this week’s midterm elections. The political landscape remains a focal point for market participants as they assess potential policy outcomes.
AI Infrastructure Debt Faces Distress
While equity markets look toward a rebound, the cost of insuring some AI corporate debt against default has started to rise, with wide dispersion among AI names. Neocloud operators running GPU-leasing data centers are under intense stress.
CoreWeave and Nebius have seen their credit default spreads widen to distressed levels. CoreWeave’s share price is down 60% in the past year, and Nebius is lower by nearly a quarter in the past three months. Both companies are set to join in Monday’s recovery despite these underlying financial pressures.
The stress stems from massive capital expenditures required to lease compute power, funded by enormous amounts of debt. Compounding the issue, GPUs and AI compute hardware have a shorter lifespan than originally thought, meaning projected revenues are nowhere near capex levels.
Global Market Divergence
Investors showed a clear preference for European over US stocks last week, with Greece and Germany performing well on a broad basis. In contrast, indices in the US, Brazil, Japan, China, and Taiwan came under pressure last week.