Good morning and welcome to First Trade. Did you make Trump’s shortlist for the next Fed chair? Check out the five favored candidates, including a big Wall Street name.
Rundown
- Is it time to worry about gold? The precious metal is down sharply after a record-breaking run, and one firm thinks the sell-off is just getting started.
- Qualcomm enters the AI ring. The company announced new chips and computers designed to compete with Nvidia, and its stock spiked.
- The Beyond Meat meme-stock trader has a new target. He’s looking at a biotech firm that recently pivoted to become a digital asset treasury.
But first, step up and spin the market wheel.
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Market musings
When it rains, it pours
In the market, entire weeks can pass without any real catalyst. Inspiration can run thin, which can lead to traders talking themselves into tepid moves based on minimal information.
This is definitely not one of those weeks. In fact, every single one of the four main narratives is in play concurrently, setting up an unpredictable period of trading.
After all, the market is not a kung-fu movie, dispatching developments in orderly fashion, one at a time. It’s more like John Wick, with complications constantly coming from all angles, often multiple at once.
Let’s recap the landscape, and how each driver could shape markets in the near term:
Catalyst 1: The Fed
The next FOMC meeting kicks off today, with the culmination on Wednesday, when the central bank announces its latest interest-rate decision. The Fed is overwhelmingly expected to cut rates by 25 basis points, followed by a press conference from Chair Jerome Powell.
What could happen: A single rate cut is priced in with 98% certainty, so any volatility will result from Powell’s comments. If he laments that inflation is peskily high, that could dent rate-cut hopes and send stocks lower. But if he complains about any other struggling economic force — like the labor market — that could stoke expectations of more aggressive cuts, giving stocks a boost.
Catalyst 2: AI fever
The latest big development in this space came on Monday as Qualcomm threw its hat in the ring by announcing new chips and computers. This sent the company’s stock surging (see below) and lifted chip names overall. Another week, another shuffling of major AI players — and this time OpenAI wasn’t even involved.
What could happen: Even if the Qualcomm-adjacent stock moves are limited to a single day, the company’s announcement further raises investor antennae for new products and cross-company collaborations — all of which have been rocket fuel for associated stocks.
Catalyst 3: Earnings season
This week is as big as it gets. Across Wednesday and Thursday, the following mega-cap tech giants report: Alphabet, Meta, Microsoft, Amazon, and Apple. That’s 25% of the S&P 500 right there.
What could happen: At risk of stating the obvious, strong results should lead to stock gains. The question then becomes: what constitutes “strong”? For this group, which is enmeshed in the AI race, strength can be defined in a couple ways, namely: (1) better-than-expected future earnings forecasts and (2) tangible results of massive AI spending.
Catalyst 4: Trade progress
This is last chronologically, but certainly not least, since a reported US-China treaty was the main source of record highs for stocks on Monday. The main event comes on Thursday, with Trump and Chinese President Xi Jinping set to meet.
What could happen: Looking at the index level, trade-war progress is unabashedly positive. Fewer tariffs and more global collaboration is a good thing, especially for US exporters.
At the sector and single-stock level, it’s a bit more unpredictable, although there has been an unwinding of trades that benefited from US-China gridlock. For instance, safe-haven assets like gold and US Treasurys gave up some gains on Monday, while US-affiliated rare-mineral stocks took a tumble. Expect this to continue if further progress is solidified.
On the move
Let’s play a game: Can you tell the exact moment that Qualcomm announced its new lineup of semiconductor chips, with the intention of challenging Nvidia?
All kidding aside, this was a momentous moment not just for the share price, but for the whole AI race broadly. While Qualcomm is a comparatively late entrant to the battle for AI supremacy, the company argues that its existing mobile technology will differentiate its chips.
The market certainly seemed to agree, lifting shares 11% on the day, up 22% at intraday highs.
Interestingly, Nvidia didn’t take a dive on the increased competition, and was instead pulled higher alongside other chipmaker stocks. Even when someone comes at the king, the king still wins.
BI market mix
- Did you miss out on Beyond Meat mania? Don’t worry, we have a new high-conviction idea from the retail investor who sparked the whole craze. Dimitri Semenikhin told BI why he’s eyeing a biotech stock that recently pivoted to be a crypto treasury.
- Two states to monitor for recession. As New York and California go, so does the US, says economist Mark Zandi. He told BI that there’s no imminent risk of a sharp downturn, but that recession still remains a possibility.
- Gold has lost some of its luster. The precious metal is down sharply from record highs a week ago. Capital Economics says it’s headed for a “mini-bust” that could drag it 12% lower by the end of the year.
Chart of the day
Apollo/Torsten Slok
Today’s chart comes from Torsten Slok, the chief economist at Apollo. It shows that the US currently has more data centers built than all other major countries combined. It has 5,425, more than 10 times Germany, which is in a distant second place.
“The bottom line is that the rest of the world is far behind the US when it comes to AI,” Slok wrote.
Be sure to browse Business Insider’s interactive map, which shows where data centers are all across the US. And check out the full investigation here.
Pro tip
Business Insider’s Will Edwards highlights investing recommendations pegged to the biggest trends in markets.
There’s been plenty of recent chatter — and debate — about a potential AI bubble.
Lance Roberts, the CIO at RIA Advisors, is leaning into the “not a bubble” narrative. He says the next few months are actually a good time to buy mega-cap tech stocks leading the AI trade, and he offers three main reasons why.
The first is earnings, with Alphabet, Meta, Microsoft, Amazon, and Apple scheduled to report this week.
“They should all be good because we came into the earnings season with estimates brought down a bit,” Roberts told BI about the bevy of tech stocks reporting.
Second is buybacks, which have historically been a way for companies to engineer stock gains and signal to investors that they think their stock is affordable. Repurchases are up 16% year-over-year, and companies that do them have been rewarded, Goldman Sachs data shows.
“We’re going to have about $6 to $7 billion a day in corporate buybacks starting in early November,” Roberts said. “That’s going to provide an uplift.”
Third, he points out that discretionary traders from institutions like hedge funds are underweight tech stocks at the moment. Roberts thinks their re-entry can fuel a rebound.
“There’s going to be a catch-up run, particularly in AI, as we approach the year-end reporting period,” he said.
For investors looking to follow his advice, funds like the Vanguard Mega Cap Growth ETF (MGK) and the Roundhill Magnificent Seven ETF (MAGS) offer exposure to mega-cap tech names.
Build-a-portfolio workshop
We’re maintaining the First Trade index, an equal-weighted basket of five stocks that will be adjusted each week. After one rebalancing, we ended up with this group: Amazon, Johnson & Johnson, JPMorgan, Microsoft, and Tesla. Each week, you’ll vote one stock out, and one in.
Last week we added Tesla, and this week we’ll be sliding in Nvidia. It doesn’t have earnings this week, but it’s wildly popular with retail traders and has been absolutely scorching for the past few years. Its inclusion will come at the expense of J&J, which will be removed.
And with that, our portfolio has gotten even more tech-heavy, and more levered towards the AI theme that’s ruled markets. How will it work out? Check back next Monday, Nov. 3, for an update.
The First Trade team: Joe Ciolli, executive editor and anchor, in Chicago. Akin Oyedele, deputy editor, in New York. William Edwards, senior reporter, in New York. Steve Russolillo, chief news editor, in New York.