Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 17 November - Is the AI trade rolling over, is the Fed going to cut again next month and is Bitcoin stuck in a bear market?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
In the US AI stocks and a lot in the speculative tech/momentum space took a pasting last week, but Friday saw some recovery into the close, pushing the Nasdaq to post a positive session on Friday. Having opened lower bulls and dip buyers gathered to see the S&P 500 hold the trend line as it rallied around 100pts off its lows of the day to close above its 50-day line. NDX similarly pushed ~500pts off its LOD to close above the 50-day line. The question is whether the current choppiness gives way to a rally into the Christmas period.
Among the AI and semis names Nvidia rose 1.8% but closed the week down over 4%. Oracle was down over 7% for the week, LAM Research –11% and KLA was -7%. Two of the most popular AI stocks, Nebius and CoreWeave, both lost almost a third of their market cap last week. Alphabet finished lower for the week too, but fresh data shows Berkshire Hathaway purchased 17.8 million shares during Q3 amid a 46% rally, worth $4.3 billion. Peter Thiel’s hedge fund meanwhile dumped its Nvidia holding. AI stocks in the GS US TMT AI Basket are already close to correction (i.e. a retreat of 10%). We looked at whether it was the right time to call the top of the AI trade last week.
Talking of which, the entire AI trade likely depends on Nvidia earnings due on Wednesday. Earnings are seen +54% to $1.25 per share with revenues +56% yoy to $54.8bn. Analysts are sounding upbeat ahead of the report with guidance expected to be strong on continued ramp of the GB300 advanced AI servers and generally insatiable AI demand as hyperscalers continue to bolster capex. But the bar is set very high and we know that if investors are starting to wobble the whole house of cards can come crashing down at any point.
Profitability at the stocks at the heart of the AI bubble remains very strong, but any weakness evident in the Q3 from Nvidia would be punished hard by markets. However, as valuations are less stretched outside of the core US-AI bubble trade the impact across the broad equity market space may be less problematic should we see a hit to Nvidia et al.
Signs it's not a bubble, at least not yet? GS says the valuation of leading technology companies has increased and reflects growing optimism about future growth but has not reached the "dizzying heights that we saw for companies at the epicentre of the bubble in technology in the late 1990s, or in Japan in the banking and real estate bubbles in the late 1980s". In addition, there has been little in the way of IPOs in the sector and, while debt financing has started to increase, it remains much more moderate than in past bubbles.
After weeks of an effective data blackout, the government reopening in the US should mean we start to see some figures. The Bureau of Labor Statistics is likely to put out an updated schedule and the September payrolls report, originally due 3 Oct, should be released in quickly, but there could be significant delays to the October report. The long and short of all this is that we should start to get some clarity around the likelihood of another Fed rate cut next month. Market expectations have changed considerably in the last week with the odds of a cut down from around 70% to 44% today, due largely to the lack of data. The re-emergence of data will spark fresh volatility. Also watch for retail stocks reporting this week - Home Depot tomorrow, Target and Lowe's on Wednesday and Walmart on Thursday.
Budget Watch: UK gilt yields remain elevated after last week’s bump with the 10yr above 4.55% this morning. Last week Rachel Reeves seems to have ditched plans to raise income tax. That means tinkering around at the margins – a narrower field of targets, more growth-negative and inflationary...not a great setup for gilts. For more Budget coverage check our latest podcast episode with BlondeMoney's Helen Thomas
Elsewhere, tariffs may be biting as Japan’s economy shrank 0.4% but the country is eyeing up a major stimulus package under the new prime minister Taikachi. The Nikkei 225 held firm at 50,300 as dollar-yen reapproaches 155. But retail and tourism stocks took a hit as China warned its citizens not to travel to its neighbour amid a diplomatic spat between the countries.
Key Points
- Attention turns to Nvidia earnings (Wed) after tech stocks wobble amid AI valuation concerns
- SPX and NDX hold 50-day SMAs amid Friday rally
- Fed rate cut bets depend on flow of US economic data after shutdown
- Bitcoin struggles around $95k amid signs of persistent weakness
Not much movement in European equity indices at the open on Monday as investors search around for some direction following a challenging week for stocks. Flat early gave way to some losses after the first hour of trading. The FTSE 100 was essentially flat (-0.08% as of pixel time) early doors after two consecutive daily declines of 1%, ending a mixed week that had started with great promise as 9,900 was cleared. The last two sessions have taken the market back to the 9,700 level, which seems to be acting as resistance now. WPP leads the gains amid takeover speculation - shares are at their lowest since 2009 so something needs to be done. Asian stocks were broadly lower amid heightened geopolitical tensions between China and Japan. Gold slipped back below $4,100, silver may have made a double-top and Bitcoin is struggling to find support around the $95k mark. (heard on the trading floor re BTC: 'there's a lot of bearishness out there').
In the US AI stocks and a lot in the speculative tech/momentum space took a pasting last week, but Friday saw some recovery into the close, pushing the Nasdaq to post a positive session on Friday. Having opened lower bulls and dip buyers gathered to see the S&P 500 hold the trend line as it rallied around 100pts off its lows of the day to close above its 50-day line. NDX similarly pushed ~500pts off its LOD to close above the 50-day line. The question is whether the current choppiness gives way to a rally into the Christmas period.
Among the AI and semis names Nvidia rose 1.8% but closed the week down over 4%. Oracle was down over 7% for the week, LAM Research –11% and KLA was -7%. Two of the most popular AI stocks, Nebius and CoreWeave, both lost almost a third of their market cap last week. Alphabet finished lower for the week too, but fresh data shows Berkshire Hathaway purchased 17.8 million shares during Q3 amid a 46% rally, worth $4.3 billion. Peter Thiel’s hedge fund meanwhile dumped its Nvidia holding. AI stocks in the GS US TMT AI Basket are already close to correction (i.e. a retreat of 10%). We looked at whether it was the right time to call the top of the AI trade last week.
Talking of which, the entire AI trade likely depends on Nvidia earnings due on Wednesday. Earnings are seen +54% to $1.25 per share with revenues +56% yoy to $54.8bn. Analysts are sounding upbeat ahead of the report with guidance expected to be strong on continued ramp of the GB300 advanced AI servers and generally insatiable AI demand as hyperscalers continue to bolster capex. But the bar is set very high and we know that if investors are starting to wobble the whole house of cards can come crashing down at any point.
Profitability at the stocks at the heart of the AI bubble remains very strong, but any weakness evident in the Q3 from Nvidia would be punished hard by markets. However, as valuations are less stretched outside of the core US-AI bubble trade the impact across the broad equity market space may be less problematic should we see a hit to Nvidia et al.
Signs it's not a bubble, at least not yet? GS says the valuation of leading technology companies has increased and reflects growing optimism about future growth but has not reached the "dizzying heights that we saw for companies at the epicentre of the bubble in technology in the late 1990s, or in Japan in the banking and real estate bubbles in the late 1980s". In addition, there has been little in the way of IPOs in the sector and, while debt financing has started to increase, it remains much more moderate than in past bubbles.
After weeks of an effective data blackout, the government reopening in the US should mean we start to see some figures. The Bureau of Labor Statistics is likely to put out an updated schedule and the September payrolls report, originally due 3 Oct, should be released in quickly, but there could be significant delays to the October report. The long and short of all this is that we should start to get some clarity around the likelihood of another Fed rate cut next month. Market expectations have changed considerably in the last week with the odds of a cut down from around 70% to 44% today, due largely to the lack of data. The re-emergence of data will spark fresh volatility. Also watch for retail stocks reporting this week - Home Depot tomorrow, Target and Lowe's on Wednesday and Walmart on Thursday.
Budget Watch: UK gilt yields remain elevated after last week’s bump with the 10yr above 4.55% this morning. Last week Rachel Reeves seems to have ditched plans to raise income tax. That means tinkering around at the margins – a narrower field of targets, more growth-negative and inflationary...not a great setup for gilts. For more Budget coverage check our latest podcast episode with BlondeMoney's Helen Thomas
Elsewhere, tariffs may be biting as Japan’s economy shrank 0.4% but the country is eyeing up a major stimulus package under the new prime minister Taikachi. The Nikkei 225 held firm at 50,300 as dollar-yen reapproaches 155. But retail and tourism stocks took a hit as China warned its citizens not to travel to its neighbour amid a diplomatic spat between the countries.
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