U.S. Financial Market Analysis β Wall Street ends the day lower on October 23, worried about oil and AI
Wall Street ended the day lower on Friday October 23 as investors were concerned about increasing oil prices, higher treasury yields, Artificial Intelligence investment and the Fed.
This has been a volatile week for the U.S. markets. Tech stocks have been somewhat stable however investors are still concerned on whether AI investment will pay out quickly enough.
The major U.S. indices ended the day lower.
Index Date Close Daily Change
Dow Jones Industrial Average 52,215.16 -1.23%
Nasdaq Composite 25,955.34 -0.21%
Russell 2000 2,775.90 -0.3%
The Dow performed the worst of the major indices, closing over 650 points lower. The S&P 500 also fell and the Nasdaq saw a small fall after the sharp decline on Thursday.
- Oil Prices
One of the key drivers on Friday were oil prices.
Brent crude rose around 3.1%, reaching above $116 per barrel, the highest since June 2022. This can create concerns for investors as energy prices increase, causing higher costs for companies and consumers.
Investors are concerned on how long oil will remain at a high price.
- AI Concerns
AI has been one of the biggest themes in the global stock market however investors are becoming more discerning.
The sharp fall in tech stocks on Thursday shows how quickly sentiment can turn if investors begin to question whether companies will make money with their substantial investment into AI data centres, chips and infrastructure. The Nasdaq fell 2.6% on Thursday, marking the biggest fall in one day since early June.
Tech stocks were somewhat stable on Friday. However they struggled to fully recover from the concerns. The S&P 500 tech sector rose 0.35% (Reuters). However, this was not enough.
Investors are questioning:
How much will companies need to invest into AI before they make money?
This could be a key factor over the next few earnings seasons.
Treasury Yields
The U.S. bond market has also played a key role.
The 10 year Treasury yield rose to around 4.99% on Friday. This can hurt stocks as investors have a better low risk alternative. It can also lead to increases in borrowing costs in the economy.
Growth and tech stocks suffer most from this. These stocks can often be based on future earnings so when interest rates rise, this hurts the value of these earnings.
A Volatile Week
The week has been very volatile.
The S&P 500 rose on Monday, Tuesday and Wednesday before seeing a sharp fall on Thursday and Friday. Overall it was down around 0.5%. The Nasdaq was down around 0.7% and the Dow even rose around 0.4%.
Interestingly, investors are not selling out of stocks however they are being more cautious with switching between sectors.
What To Watch Out For
The market is now focussing on corporate earnings and the Fed.
There are many big names coming up in the earnings calendar. Investors will get a chance to see if valuations are fair.
The market will also be looking forward to the next interest rate meeting from the Fed. Monetary policy is extremely important right now. Higher interest rates can impact many areas such as tech stocks, housing and borrowing costs.
Investors will be looking for:
Oil prices β Will they stabilise?
AI Investment β Are companies making enough revenue and productivity with their substantial investment?
Interest Rates β Will the Fed be more favourable?
The U.S. market is very important for investors globally. If treasury yields continue to rise, along with oil prices and volatility, this can impact currencies, bonds, EM stocks and global flows.
Overall, this shows just how integrated our markets are for international investors.
The positive is that the U.S. overall is still up from earlier in the year. However, the more cautious outlook is that investors are becoming less willing to pay for growth, especially with rates and energy prices increasing.
Key Points
Another challenging week for Wall Street ended on October 23.
The Dow fell 1.23%, the S&P 500 fell 0.52% and the Nasdaq fell 0.21%. Oil prices rose sharply, treasury yields moved closer to 5% and investors are debating whether AI investment will pay out sufficiently.
Over the next few weeks, there will be some key factors.
Corporate earnings will give us an indication of just how strong the U.S. economy is and how profitable major companies are. The Fed will also play a role in determining what financial conditions they will be in.
Overall, October 23 shows that while growth stories are still important, valuations, inflation, energy prices and interest rates are also very important.
This article is just for information and educational purposes. It is not investment advice.
