Stocks Supported by the AI Spending Boom

The S&P 500 Index ($SPX) (SPY) today is up +0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.25%.  December E-mini S&P futures (ESZ25) are up +0.13%, and December E-mini Nasdaq futures (NQZ25) are up +0.22%.

Stock indexes are slightly higher today, with the S&P 500 and Nasdaq 10 posting new all-time highs.  Stocks are climbing today due to strength in chip makers and AI infrastructure stocks. Advanced Micro Devices is up more than +6% today, adding to Monday’s +23% surge to lead semiconductor stocks higher due to the spending boom in artificial intelligence.  

Optimism that growth in the AI sector and spending on artificial intelligence will translate into corporate profits is a major bullish factor for stocks.  Stocks are also underpinned by hopes that a resilient US economy and additional Fed easing will continue to support the economy. 

Hawkish comments Monday evening from Kansas City Fed President Jeff Schmid are negative for stocks when he said, “With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and relieve price pressures in the economy.”

The shutdown of the US government has now entered a second week, weighing on market sentiment and delaying key economic reports.  The government shutdown means delays in the release of government reports, including today’s international trade data for August and last Friday’s monthly payroll report.  A prolonged shutdown could also delay the government’s inflation data, scheduled for release on October 15.  The White House has warned that if the government shutdown lingered, it would trigger widespread dismissals of employees in government programs that don’t align with President Trump’s priorities.  Bloomberg Economics estimates that 640,000 federal workers will be furloughed during a shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

The ongoing US government shutdown, expectations of additional Fed easing, and political uncertainty in France and Japan are also driving investors to haven assets, such as gold and Bitcoin.  Gold prices edged up to another record high today after Goldman Sachs raised its gold price forecast for 2026 to $4,900 an ounce from $4,300, citing ETF inflows and central bank buying.  According to the latest data, the People’s Bank of China added to its gold holdings in September for an eleventh consecutive month.  

Market focus this week will be on any new developments regarding tariffs, trade, or attempts by lawmakers to end the ongoing US government shutdown.  On Wednesday, the minutes of the September 16-17 FOMC meeting will be released.  On Thursday, Fed Chair Powell will give welcoming remarks at a Fed Community Bank Conference.  On Friday, the University of Michigan Oct consumer sentiment index is expected to fall -1.1 to 54.0.

Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, more than 22% of companies in the S&P 500 provided guidance for their Q3 earnings results that are expected to beat analysts’ expectations, the highest in a year.  However, Q3 profits are expected to have risen by +7.2%, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to 5.9% from 6.4% in Q2. 

The markets are pricing in a 93% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.16%.  China’s Shanghai Composite did not trade and is closed for the week-long Lunar New Year holiday.  Japan’s Nikkei Stock 225 rose to a new record high and closed up +0.01%.

Interest Rates

December 10-year T-notes (ZNZ5) today are up by +1 tick.  The 10-year T-note yield is down -0.6 bp to 4.146%.  Dec T-notes recovered from a 1-week low today, and the 10-year T-note yield fell from a 1-week high of 4.175%.  T-notes are supported by the ongoing US government shutdown, which could add to job losses and weaken the US economy, allowing the Fed to continue cutting interest rates. 

T-notes initially moved lower today on hawkish comments from Kansas City Fed President Schmid, who said policymakers need to keep pressing against inflation, which has remained stubbornly high.  Also, supply pressures are undercutting T-note prices as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with today’s $58 billion auction of 3-year T-notes.  Losses in T-notes are limited as a protracted US government shutdown could weaken the economy, a supportive factor for T-notes. 

European government bond yields are moving higher today.  The 10-year German bund yield is up +0.5 bp at 2.724%. The 10-year UK gilt yield climbed to a 1-week high of 4.753% and is up +0.2 bp to 4.738%.

German Aug factory orders unexpectedly fell -0.8% m/m, weaker than expectations of +1.2% m/m.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Advanced Micro Devices (AMD) is up more than +6%, adding to Monday’s +23% surge, and leading gainers in the S&P 500 and Nasdaq 100 after Jeffries upgraded the stock to buy from hold with a price target of $300, citing the company’s deal with OpenAI.  Other chip makers and AI infrastructure stocks are climbing on the news, with Super Micro Computer (SMCI) up more than +4% and Palantir Technologies (PLTR) up more than +2%.  Also, Intel (INTC), Qualcomm (QCOM), ARM Holdings Plc (ARM), GlobalFoundries (GFS), and Micron Technology (MU) are up more than +1%.   

Amkor Technology (AMKR) is up more than +10% after the company broke ground on an outsourced semiconductor advanced packaging and test campus in Arizona.

Dell Technologies (DELL) is up more than +5% after projecting that annual adjusted EPS will increase 15% or more on booming AI demand.

International Business Machines (IBM) is up more than +3% to lead gainers in the Dow Jones Industrials after it said it will integrate Anthropic’s Claude family of large language models into its software portfolio. 

Veeva Systems (VEEV) is up more than +3% after TD Cowen upgraded the stock to buy from hold with a price target of $380.

Intercontinental Exchange (ICE) is up more than +1% after the Wall Street Journal reported that the company is in talks to invest $2 billion in Polymarket. 

Constellation Brands (STZ) is up more than +2% after reporting Q2 comparable net sales of $2.48 billion, better than the consensus of $2.45 billion. 

Netflix (NFLX) is up more than +1% after Seaport Global Securities upgraded the stock to buy from neutral with a price target of $1,385.

Aehr Test Systems (AEHR) is down more than -26% after reporting that Q1 revenue decreased by -16% to $11 million from $13.1 million in the year-earlier quarter. 

Ford Motor (F) is down more than -5% to lead losers in the S&P 50 after the Wall Street Journal reported the company faces months of disruptions to its business after a major fire at an aluminum plant in New York.

Homebuilder stocks are under pressure today after Evercore ISI downgraded the sector to in line from outperform.  DR Horton (DHI), KB Home (KBH), Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) are down more than -2%.  

Gitlab (GTLB) closed down more than -3% after Mizuho Securities downgraded the stock to neutral from outperform.

Dollar Tree (DLTR) is down more than -2% after Jeffries downgraded the stock to underperform from hold with a price target of $70. 

Autoliv (ALV) is down more than -2% after UBS downgraded the stock to neutral from buy with a price target of $124.

GE Healthcare Technologies (GEHC) is down more than -1% after Citigroup Global Markets downgraded the stock to neutral from buy.

CarMax (KMX) is down more than -1% after Stephens downgraded the stock to equal weight from overweight.

Earnings Reports(10/7/2025)

McCormick & Co Inc/MD (MKC), Penguin Solutions Inc (PENG), TuHURA Biosciences Inc (HURA).