Stocks Power Higher on AI Optimism

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.58%, the Dow Jones Industrials Index ($DOWI) (DIA) closed unchanged, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.19%.  December E-mini S&P futures (ESZ25) rose +0.60%, and December E-mini Nasdaq futures (NQZ25) rose +1.17%.

Most stock indexes rallied on Wednesday, with the S&P 500 and Nasdaq 100 posting fresh all-time highs.  Strength in semiconductor and AI infrastructure stocks on Wednesday supported gains in the broader market.  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. 

US MBA mortgage applications fell -4.7% in the week ended October 3, with the purchase mortgage sub-index down -1.2% and the refinancing mortgage sub-index down -7.7%.  The average 30-year fixed rate mortgage fell -3 bp to 6.43% from 6.46% in the prior week.

The minutes of the September 16-17 FOMC meeting had a hawkish tone, stating, "Most policymakers judged that it would be appropriate to ease policy further over the remainder of the year," but "a majority of participants emphasized upside risks to their outlooks for inflation."

The shutdown of the US government is now into its second week, weighing on market sentiment and delaying key economic reports.  The government shutdown means delays in the release of government reports, including Tuesday's Aug US trade report 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 the 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, President Trump's criticism of the Fed, and political uncertainty in France and Japan are all driving investors to safe-haven assets, such as gold and Bitcoin.  Gold prices soared above $4,000 an ounce to another record high on Wednesday.  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 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 on Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.64%.  China's Shanghai Composite did not trade and is closed for the week-long Lunar New Year holiday.  Japan's Nikkei Stock 225 closed down -0.45%.

Interest Rates

December 10-year T-notes (ZNZ5) on Wednesday closed down by -2 ticks.  The 10-year T-note yield rose +0.4 bp to 4.127%.  T-note prices gave up early gains on Wednesday and turned lower after the S&P 500 climbed to a new record high, which curbed safe-haven demand for government debt securities.  Weak demand for the Treasury's $39 billion auction of 10-year T-notes also weighed on T-note prices Wednesday, as the auction had a bid-to-cover ratio of 2.48, below the 10-auction average of 2.57.

T-notes initially moved higher on Wednesday, amid concerns about the ongoing US government shutdown, which could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates.  

European government bond yields on Wednesday moved lower.  The 10-year German bund yield dropped to a 3-week low of 2.666% and finished down -3.1 bp at 2.679%.  The 10-year UK gilt yield fell by -1.0 bp to 4.709%.

German Aug industrial production fell -4.3% m/m, weaker than expectations of -1.0% m/m and the biggest decline in almost 3.5 years.

ECB Governing Council Member Muller said the Eurozone economy is slowly picking up and inflation is in line with the ECB's 2% target.

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

Chipmakers and AI infrastructure stocks rallied on Wednesday, providing a supportive factor for the broader market.  Advanced Micro Devices (AMD) closed up more than +11% to lead gainers in the S&P 500 and Nasdaq 100.  Also, Dell Technologies (DELL) closed up more than +9%, and Super Micro Computer (SMCI) and Marvell Technology (MRVL) closed up more than +6%.  In addition, Micron Technology (MU) and ON Semiconductor (ON) closed up more than +5%, and ARM Holdings Plc (ARM) and Microchip Technology (MCHP) closed up more than +3%.  Finally, NXP Semiconductors NV (NXPI), Applied Materials (AMAT), Broadcom (AVGO), Nvidia (NVDA), and GlobalFoundries (GFS) closed up more than +2%.

Gold mining stocks moved higher on Wednesday after the price of gold soared over $4,000 an ounce to a new record high.  Anglogold Ashanti Plc (AU), Coeur Mining (CDE), and Gold Fields Ltd (GFI) closed up more than +3%, and Newmont (NEM) closed up more than +1%.

AST SpaceMobile (ASTS) closed up more than +8% after signing an agreement to provide direct-to-cellular connectivity when needed for Verizon customers starting in 2026.   

Confluent (CFLT) closed up more than +7% after Reuters reported the company is exploring a sale after receiving acquisition interest. 

Rocket Lab (RKLB) closed up more than +6% after signing a contract with iQPS to launch three more satellites for the Japanese company.

Datadog (DDOG) closed up more than +6% after Bernstein raised its price target on the stock to $170 from $147.

Freeport-McMoRan (FCX) closed up more than +5% after Citigroup upgraded the stock to buy from neutral with a price target of $48.

Constellation Energy (CEG) closed up more than +4% after Seaport Global Securities upgraded the stock to buy from neutral with a price target of $407. 

Penguin Solutions (PENG) closed down more than 15% after forecasting fiscal 2026 sales of $1.31 billion to $1.59 billion, with the midpoint below the consensus of $1.48 billion. 

Fair Isaac Corp (FICO) closed down more than -9% to lead losers in the S&P 500 after rival Equifax said its VantageScore 4.0 service will offer mortgage credit scores at $4.50 through the end of 2027. 

Joby Aviation (JOBY) closed down more than -7% after offering a $500 million block of shares overnight in a range of $16.85-$17.35, well below Tuesday's closing price of $18.91. 

Defensive food-producing companies retreated on Wednesday as the overall market strengthened.  Tyson Foods (TSN) closed down more than -3%.  Also, J M Smucker (SJM) and General Mills (GIS) closed down more than -2%.  In addition, Kraft Heinz (KHC), Mondelez International (MDLZ), Conagra Brands (CAG), and the Campbell Company (CPB) closed down more than -1%.

Live Nation Entertainment (LYV) closed down more than -3% after announcing it intends to offer $1.3 billion in convertible senior notes due 2031.

Intercontinental Exchange (ICE) closed down more than -1% after TD Cowen cut its price target on the stock to $199 from $212.

Edwards Lifesciences (EW) closed down more than -1% after Oppenheimer & Co. downgraded the stock to market perform from outperform.

Earnings Reports(10/9/2025)

Apogee Enterprises Inc (APOG), Applied Digital Corp (APLD), Byrna Technologies Inc (BYRN), Delta Air Lines Inc (DAL), Helen of Troy Ltd (HELE), Neogen Corp (NEOG), Oil-Dri Corp of America (ODC), Park Aerospace Corp (PKE), PepsiCo Inc (PEP).