Weekly Stocks: Near-Record Highs, Rate Fears, AI Debt
Weekly stock recap: US yield at 5.35%, DAX below 25,000, Oracle credit protection at a record. What moved markets and what's next.
Key Takeaways
- A handful of AI heavyweights carry the US indices, while market breadth is missing.
- The 10-year US yield briefly hits 5.35 percent, and the DAX closes Thursday at 24,807 points.
- Credit markets price in more risk from AI financing, with Oracle protection at a record.
Gold isn't shining and oil isn't driving, so this week bonds decide the equity picture. On Thursday the DAX (Germany's main blue-chip index) lost 1.18 percent and closed at 24,807 points, while the S&P 500 still sits just below 8,000 points, according to Bloomberg data. Behind the contrast lie a thin foundation, expensive debt and a level of interest rates that makes investors nervous.
A Rally on Narrow Shoulders
To understand the week, start with what the advance is made of. Since the low in October 2022 the S&P 500 has gained roughly 117 percent. The index adjusted for weighting lags by 52 percentage points, according to the Bloomberg data relayed by Claudio Kummerfeld for Finanzmarktwelt, the widest gap in a comparable bull market since at least the 1990s.
The engine is Nvidia: the chipmaker has risen more than 1,900 percent since the market low at the end of 2022 and is heading toward a $6 trillion market value. CFRA chief strategist Sam Stovall still expects a long bull market but dislikes the historically narrow base. For investors that means: if the AI story stumbles, there is no broad cushion underneath.
Thursday Shows How Thin the Ice Is
Thursday proved the concern isn't theoretical. Reports that OpenAI's annualized revenue is below earlier estimates sent technology stocks lower and pulled the S&P 500 as a whole into the red. According to Bloomberg, OpenAI expects an annualized run rate of $70 billion by the end of December, up from about $50 billion at the end of September. The Financial Times attributes the discrepancy to calculation methods: investors book cloud revenue differently than competitor Anthropic.
The episode points to a deeper problem. Finanzmarktwelt author Stefan Jäger puts the tech industry's new debt this year at almost $500 billion. The price of protecting five-year Oracle bonds rose to a record 261 basis points on Thursday, Broadcom stands at 136 and SpaceX at around 194. Mark Clegg of Allspring describes the market as if it were holding a crisis meeting every few hours on the AI buildout.
Rate Pressure Sits at the Long End
All of this is amplified by a bond market demanding higher compensation. The yield on 10-year US Treasuries briefly reached 5.35 percent on Thursday, just below its highest level since 2002. The trigger was an oil spike: Brent rose more than 4.5 percent to above $105 a barrel after tankers were attacked and reports of new US military strikes circulated.
On Friday the situation eased. Trump ruled out attacks on Iran before the midterms, Brent fell below $103, and the yield dropped to about 5.21 percent after a solid auction of 30-year paper. According to the New York Fed model, the term premium stands at 0.98 percentage points, as high as in 2014. Investors are retreating into cash: money market funds took in $166.4 billion, according to Bank of America, while equity funds drew only $12.4 billion.
What momentum says
Heading into the weekend, Nvidia stands at $229.28. The momentum signals a bullish state on the daily chart, and likewise on the weekly chart. No data is available for shorter timeframes. Despite Thursday's weakness, the key AI stock shows no trend break on the larger timeframes so far.
Scenarios
If the DAX defends the zone around 24,800 points, where the 200-day line at 24,851 points also runs, a test of resistance between 24,975 and 25,050 points remains possible. Only above that would the 25,000 mark come back into play.
If yields and oil climb again, meaning above 5.35 percent and $105 respectively, tech stays under pressure. If both fall further, the S&P 500 has room to push toward the 8,000 mark.
Earnings season opens on Tuesday with JPMorgan. Fidelity strategist Jurrien Timmer expects the market to scrutinize valuations far more strictly at any sign of weakness.