Stock Bulls Drive S&P 500 Above 6,900 on AI Wagers: Markets Wrap
(Bloomberg) — A rally in the world’s largest technology companies sent stocks to all-time highs amid speculation that artificial intelligence will keep driving earnings for the group that has powered the bull market.
While most shares in the S&P 500 took a breather after the gauge saw a series of records, tech megacaps kept rising. Microsoft Corp. finalized a new pact with OpenAI that will give the software giant a 27% ownership stake worth about $135 billion. Apple Inc. briefly topped $4 trillion. Nvidia Corp. unveiled a new system to connect quantum computers with the company’s AI chips.
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On Wednesday and Thursday, five big techs accounting for about a quarter of the US benchmark are due to report results. Investors will be looking for assurances that the billions of dollars for computing infrastructure will continue — and ultimately pay off down the road.
“This group has repeatedly reassured investors that the AI theme is alive and well, and given the number of deals that have been announced over the past few months, it seems likely that this narrative will continue so long as Wall Street rewards them for this approach,” said Bret Kenwell at eToro.
Meantime, with a Federal Reserve rate cut seen as a done deal Wednesday, traders are hoping for clarity as to when officials should stop shrinking the portfolio of securities. Bets have grown they may end quantitative tightening as soon as this month.
That’s all hapenning ahead of President Donald Trump’s Thursday meeting with his Chinese counterpart Xi Jinping. The Wall Street Journal reported the US would roll back some tariffs if Beijing cracks down on the export of chemicals that produce fentanyl.
The S&P 500 topped 6,900. A gauge of the Magnificent Seven megacaps climbed 1.4%. The yield on 10-year Treasuries was little changed at 3.98%. The dollar edged lower.
The Magnificent Seven group is projected to deliver profit growth of 14% in the third quarter, according to data compiled by Bloomberg Intelligence. That’s nearly twice the 8% expected profit growth for the broader S&P 500, but it also would be the slowest pace since the first quarter of 2023.
However, Big Tech firms have a history of reporting earnings that far exceed Wall Street estimates. And that’s what many investors are counting on.
“We expect another strong round of megacap tech earnings reports, given the relentless demand for AI technology and infrastructure,” said Clark Bellin at Bellwether Wealth. “While profitability in AI remains an unknown, investors for right now are willing to overlook this as the AI arms race heats up”.
The stock market’s record highs leave little room for disappointment when it comes to big tech earnings, according to Paul Stanley at Granite Bay Wealth Management.
“Given how so much of the S&P 500’s market cap consists of Magnificent Seven names, if any of these earnings reports disappoint, that could cause a selloff or keep the market range-bound for the foreseeable future until we see the next catalyst,” he said.
“Instead of dreaming about AI’s future, investors are now becoming more skeptical about how much cash these companies are tossing at AI projects that may or may not work out,” said Callie Cox at Ritholtz Wealth Management. “This happens with every tech innovation, so you should expect highs and lows as the world processes a new reality.”
Cox notes the five biggest hyperscalers will spend $450 billion on capital expenditures, according to projections.
“Can these companies afford that massive bill? Of course they can. We’re far from the tech bubble days,” she said. “But at what cost? Tech is corporate America’s golden child. They’re known for quality balance sheets and wide competitive moats. Their AI pursuits could threaten these labels at a time when tech companies need to be near perfect.”
Cox noted that the gap between S&P tech company profits and stock prices is historically wide.
“A dynamic that can persist for a while, but raises the chances for disappointment,” she said.
In fact, tech remains among the most-crowded sectors. Nasdaq 100 positioning has increased significantly as investors add new long risk, reversing the fading momentum seen in recent weeks, according to Citigroup Inc. strategists.
As for the S&P 500, the Citi team led by Chris Montagu wrote that $2.7 billion of risk was added to the benchmark, through a mix of short covering and new longs. US small caps face a heightened chance of profit taking as positioning has become extended, they noted.
Meantime, Peter Boockvar noted that the Nasdaq 100 is also now almost 18% above its 200-day moving average. That’s the most since July 2024 when it got to 20% right before a 13% correction, said the author of The Boock Report.
“The markets are once again pressed into overbought/extended territory across multiple time frames,” said Dan Wantrobski at Janney Montgomery Scott. “We remain on high alert for a correction in the magnitude of 5% to 10% before 2025 closes out.”
Still, Wantrobski also noted that November overall has historically been one of the best months for US equities, per the Stock Trader’s Almanac.
“An increasing number of investors are growing concerned that the strong stock gains seen over recent months may have outpaced fundamentals, at least in the very near term,” said Anthony Saglimbene at Ameriprise. “This week’s Mag Seven earnings reports provide a chance for companies to either confirm or challenge that view.”
Speaking of size, he noted that at no other time over the last 35 years have the top 10 companies by market-cap in the S&P 500 held so much influence on one of the broadest measures of the US stock market.
“The Mag Seven is well-positioned to meet profit expectations,” Saglimbene noted. “However, given current valuations and the size and influence these companies currently hold over the broader market, it’s their outlooks and views on profitability moving forward that will likely carry the most sway with investors this week, and probably beyond.”
“The AI-driven capital expenditure trade remains the most critical factor to watch. Any disruption in that area could unwind an index that has become increasingly dependent on sustained spending,” according to Ryan Grabinski at Strategas.
While valuation often emerges as a primary concern among investors, the 50 largest S&P 500 companies trade at forward multiples below 50 — whereas at the market peak in March 2000, many companies traded well above that level, he noted.
“While it’s certainly hard to argue that the market is cheap or to expect further multiple expansion to drive returns next year, companies today are far more profitable and fundamentally sound than in the early 2000s,” Grabinski concluded.
Corporate Highlights:
Nvidia Corp. boss Jensen Huang plans to unveil new contracts to supply AI chips to major South Korean companies, including Samsung Electronics Co. and Hyundai Motor Group, when he visits the country this week to carve out new opportunities for his business. Uber Technologies Inc. will begin expanding a fleet of 100,000 autonomous vehicles powered by Nvidia Corp. technology starting in 2027, an ambitious move that could help bring down the cost of offering hailable robotaxis to consumers. Amazon.com Inc. is gutting its video-game division as part of a sweeping layoff that will eliminate more than 14,000 corporate jobs. Intel Corp. Chief Executive Officer Lip-Bu Tan said he is working to “refocus” the beleaguered chip company on engineering after its struggles with complacency and mismanagement. United Parcel Service Inc. smashed Wall Street’s profit expectations by cutting costs and eliminating 34,000 jobs this year. UnitedHealth Group Inc. nudged its outlook for the year up in a sign that it’s working its way out of a historic meltdown, though executives said it would likely face billions in charges to make changes planned to stabilize its business. PayPal Holdings Inc. raised its full-year earnings guidance and announced a tie-up with OpenAI to embed its digital wallet into ChatGPT. Trump Media & Technology Group Corp. plans to make prediction contracts available on its Truth Social network, allowing users to bet on events ranging from political elections to inflation-rate changes, according to a statement on Tuesday. JetBlue Airways Corp. laid bare a raft of challenges through the holiday travel season, from rising fuel prices and a hurricane rifling through the Caribbean to a US government shutdown that is slowing air travel. The state of Texas sued Johnson & Johnson and Kenvue, alleging that the companies hid the risks of autism and other disorders for children if mothers take Tylenol during pregnancy. Eli Lilly & Co. has already produced billions of doses of its next-generation weight-loss pill, anticipating massive global demand ahead of a potential launch next year. D.R. Horton Inc. beat estimates for quarterly home orders as first-time buyers get a lift from falling mortgage rates. Skyworks Solutions Inc. has agreed to buy Qorvo Inc. in a cash and stock deal, a move that merges two key Apple suppliers as the iPhone maker moves to in-house replacements. Medline Inc. filed publicly for a US initial public offering, setting the stage for what would be among the biggest-ever private equity backed listings. Sysco Corp., a food distributor, reported weaker-than-expected growth in US foodservice case volumes, signaling continued softness in restaurant demand. NXP Semiconductors NV, a provider of chips for automakers and industrial customers, gave a stronger-than-anticipated forecast for the current period, signaling that the company is recovering from sluggish demand and trade war uncertainties. Wayfair Inc. reported net revenue for the third quarter that beat the average analyst estimate. Royal Caribbean Cruises Ltd.’s raised guidance fell short of Wall Street expectations. SoFi Technologies Inc. boosted its adjusted net revenue forecast for the full year. Confluent Inc., a software company, reported third-quarter results that beat expectations and raised its full-year forecast for adjusted earnings. BNP Paribas SA said the takeover of the Axa Investment Managers, completed at the start of July, will lead to combined revenue and cost benefits of around €550 million ($641 million) in four years’ time. Sherwin-Williams Co.’s third-quarter earnings topped Wall Street expectations, as the paint maker’s cost control measures and pricing power help it navigate a choppy home improvement market. Adani Green Energy Ltd. said its second-quarter profit more than doubled, aided by growing power sales and a tax credit. Ping An Insurance (Group) Co. said profit rose 11.5% in the first nine months of this year, as a stock market rally lifted investment returns and policy sales expanded. What Bloomberg Strategists say…
“OpenAI’s new partnership pact with Microsoft solidifies the relationship between the two companies. Yet details from the deal signal a potential boost for Microsoft’s cloud competitors too, which may extend AI upside beyond the Magnificent Seven heavyweights.”
—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
The S&P 500 rose 0.4% as of 2:17 p.m. New York time The Nasdaq 100 rose 0.8% The Dow Jones Industrial Average rose 0.8% The MSCI World Index rose 0.3% Bloomberg Magnificent 7 Total Return Index rose 1.4% The Russell 2000 Index was little changed Currencies
The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.1% to $1.1661 The British pound fell 0.4% to $1.3277 The Japanese yen rose 0.5% to 152.16 per dollar Cryptocurrencies
Bitcoin rose 0.7% to $115,256.67 Ether rose 0.4% to $4,145.86 Bonds
The yield on 10-year Treasuries was little changed at 3.98% Germany’s 10-year yield was little changed at 2.62% Britain’s 10-year yield was little changed at 4.40% The yield on 2-year Treasuries was little changed at 3.49% The yield on 30-year Treasuries was little changed at 4.55% Commodities
West Texas Intermediate crude fell 2.1% to $60.04 a barrel Spot gold fell 0.6% to $3,958.72 an ounce ©2025 Bloomberg L.P.
