What happened last week?
Global
- Shares in global chipmakers flew skyward, with investors hyped up by OpenAI’s valuations and new partnerships.
- Gold set a new record – and Goldman thinks the rally could run even further.
US
- The US government shut down, freezing data releases and creating more uncertainty for investors.
- OpenAI’s private share sale led to a record $500 billion valuation.
- The sudden collapse of First Brands rattled Wall Street and raised deeper concerns about the hidden risks of the private debt boom.
Europe
- European inflation nudged higher, but the region’s central bank doesn’t seem as worried as its consumers.
Asia
- Chinese AI hardware makers became the year’s stock-market darlings, thanks to demand from global tech giants.
Why It Matters
Markets were pulled into another AI-driven frenzy last week, with global chipmakers adding more than $200 billion in market value in one day. The rally came on the back of OpenAI’s record $500 billion valuation (following a private share sale), fresh tie-ups between the ChatGPT-maker and South Korean chip firms, and reports that Intel may bring AMD on board as a customer.
Gold was on a tear, too, notching a new all-time high of around $3,865 an ounce last week. Investors are stocking up on the safe-haven asset, concerned about the impact of geopolitical risks, monetary inflation, and a weaker dollar. Goldman Sachs reckons the rally isn’t done yet. Retail investors are piling into ETFs while private investors are stockpiling, which could pull the price past the big bank’s already bullish forecasts of $4,000 to $4,300.
The US government shut down for the first time in nearly seven years, after Congress failed to agree on a funding deal. That forces agencies like the SEC to furlough staff, pulls most “no-essential services” offline, and freezes key data releases. While previous shutdowns had minimal impacts on markets, the White House reckons each week of this gridlock could shave $15 billion off the economy. Plus, it could diminish the Federal Reserve’s ability to make decisions, as well as broader financial stability – and in turn, investors’ confidence in the US.
Speaking of financial (in)stability, First Brands went bust – marking one of the biggest private credit blow-ups in years. The auto parts maker filed for bankruptcy with more than $10 billion in debt and only $1 billion in assets, much of it tied to complicated invoice and inventory financing. Creditors are offering a $1.1 billion rescue loan to keep the lights on, but the sudden collapse has still spooked Wall Street. After the recent failure of subprime lender Tricolor, this is another warning sign that the private credit boom may be riskier than investors thought.
Looking outside of the US, European inflation edged up to 2.1% in August – a touch higher than July’s 2.0% and basically bang on the European Central Bank’s (ECB’s) target. That said, consumers are bracing for worse: their 12-month expectations rose to 2.8% and five-year views to 2.2%. Still, the ECB brushed off the risk, saying inflation pressures look “quite contained”.
Chinese hardware makers are riding the AI boom to the top of the stock charts. The sector’s profit increased 125% last quarter, spurred on by orders from the likes of Alphabet and Nvidia. Zooming in, three companies – Eoptolink, Innolight, and Suzhou TFC – have increased by triple-digit percentages this year, making them the best performers on China’s CSI 300. The three firms make “optical transceivers” (which essentially help chips and other gizmos talk to each other) – and data centers have been hoarding them to power AI clusters.
The Focus This Week: The Forecasts Are In – And Rising
Check the calendar below, and you’ll notice this week’s a pretty light one. The US government’s blackout threatens to interrupt the usual flow of economic data. So, investors’ attention will shift straight to the next earnings season. While it’ll take another week to see any major releases, even this week’s warm-ups could influence markets – especially since there’s little other intel available.
After a strong first half of the year, investors are hoping for more of the same. The forecasts look promising: FactSet shows analysts expect S&P 500 companies to increase profit by 7.9% and revenue by 6.3% versus last year – solid numbers by any measure. What’s more, those estimates have increased heading into reporting season, which rarely happens. Usually, they get trimmed as companies manage expectations. That optimism is reflected in 12-month “bottom-up” analyst targets: they suggest the index could have another 11% to climb.
That said, analysts don’t expect sectors to share the fortunes equally. They expect tech stocks to report a 21% profit uptick, thanks to lofty sales of AI-ready chips and software. Similarly, they predict utilities to report a 17.5% rise, due to spending on AI infrastructure. Financials should clock an 11% rise, too. Meanwhile, analysts expect energy and consumer staples firms to report 3% falls: the oil price is weak and shoppers are watching their wallets.
So, what should be on your radar this earnings season? First, check out companies' margins and ability to adjust prices. Some cost pressures are creeping back in, while tariff policies are still spreading uncertainty, and not every firm will be able to keep profit steady in this climate.
Tech companies will be judged on their real-world deployment of AI, not their far-off plans. Investors are wary about the sector’s tremendous spending, so they want proof that the tech is being rolled out and increasing productivity. Otherwise, they may lose some faith in their expensive investments.
Look for signs about consumer resilience, too. With high living costs still hammering most Americans, Wall Street wants to check how they’re holding up. That’s why analysts (and investors) will check banks’ results for credit quality, charge-offs, and card spending. That will indicate financial confidence – and that will directly influence the outlook for consumer-facing firms. (Talking about consumers, the first wave of earnings – Levi’s, Constellation, Pepsi, and Delta – should offer the first clear signals on spending trends, pricing power, and demand.)


The Week Ahead
- Monday: Nothing much.
- Tuesday: Nothing much.
- Wednesday: Federal Reserve Open Market Committee minutes.
- Thursday: Germany balance of trade (August), Earnings: Delta, Pepsi, Levi’s.
- Friday: US consumer sentiment (October), Canada unemployment rate (September). Earnings: BlackRock.
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