S&P 500 and Nasdaq rise sharply, but danger has not yet passed

The US stock market is trying to recover from a disappointing trading day on Wednesday morning. Nasdaq 100 futures are up nearly 1.4 percent in early trading, while S&P 500 futures are climbing 0.64 percent. We also see green figures in Asia.

Still, the peace is not yet back. New US inflation figures yesterday reduced fears of higher interest rates. The 10-year interest rate climbed above the level of 5 percent again. As a result, the market, which is already struggling with uncertainty around AI shares, is once again facing headwinds.

On Tuesday, the S&P 500 lost about 0.38 percent and the Nasdaq fell 0.74 percent. The Dow Jones limited the damage to 0.30 percent. Today, those losses have already been recouped. Yet it all remains unstable eyes.

Despite yesterday's decline, the S&P 500 and Nasdaq were still about 2 percent higher for this week after two trading days. The recovery did not completely disappear with yesterday's decline.

Especially the strange situation around Nvidia weighed on the sentiment. The share fell by more than 5 percent. Investors are particularly concerned about the position of CEO Jensen Huang, because of the story with the Chinese spy. That uncertainty comes on top of the existing doubts about the AI investment cycle.

US consumer prices rose 0.4 percent in October compared to September. Economists were counting on 0.3 percent. Core inflation, which excludes food and energy, was also 0.3 percent higher than the expected 0.2 percent.

Moreover, Fed Governor Christopher Waller opened the door to an interest rate hike of half a percentage point in December. After the figures, the market fully priced in an increase of at least a quarter of a percentage point. The probability of a larger move increased to almost 12 percent on Tuesday and was around 10 percent in early Wednesday trading.

The US two-year interest rate shot up by about 0.18 percentage points on Tuesday and rose further in Asian trade to around 4.75 percent. Meanwhile, the ten-year interest rate rose to 5 percent.

This is an annoying combination, especially for companies that have to borrow a lot. Higher interest rates make new financing more expensive, while investors become more critical of profits that are only expected far into the future. This plays an important role in the huge investments in AI infrastructure.

In Asia, the picture is mixed for the time being. The Japanese Nikkei rises about 0.6 percent in early trade and the South Korean Kospi gains about 0.4 percent. The Chinese CSI 300 is losing about 0.2 percent.

SoftBank is a notable exception. The stock is down about 3.3 percent after a quarterly loss of about $7 billion. High costs for US data centers and rising financing costs weighed on the result.

At the same time, there is also positive news from the AI sector. CoreWeave rose more than 5 percent in US aftermarket trading after better-than-expected sales figures and strong demand for its cloud services. That offers some counterbalance to the concerns about the huge sums being invested in AI.