Category: Market News

Wells Fargo believes investors should increasingly prioritise company-specific opportunities after the positioning-driven rotation in equity markets largely reached its conclusion.

The bank’s latest sentiment readings support a more selective approach. Its market indicator moved to -0.9 last week from -1.0 previously, triggering a buy signal.

However, Wells Fargo continues to favour financial quality over higher-beta exposure, particularly as substantial AI investment requirements create new challenges for technology companies.

Technology Investors Look for Capital Discipline

Recent market behaviour suggests that distinctions between different technology segments have narrowed.

Wells Fargo observed that correlations between semiconductor shares, hyperscalers and software stocks have become positive over the past month, indicating that investors have increasingly grouped AI-related businesses together.

The bank sees opportunities in hyperscale cloud infrastructure and infrastructure software, although companies will need to demonstrate responsible capital allocation.

Within the software industry, Wells Fargo’s analysts prefer AI infrastructure and cybersecurity businesses over application software providers.

Healthcare Offers Earnings Growth Opportunities

Healthcare remains one of the bank’s preferred sectors because of its improving earnings growth outlook.

Wells Fargo identified the sector as one of the few areas where earnings-per-share growth is accelerating.

Nevertheless, its contrarian sentiment indicator has shifted to a sell signal for biopharmaceutical and life sciences companies, matching a signal previously recorded in late September.

The bank’s broader investment preference remains focused on quality rather than market sensitivity.

Political Developments May Affect Market Leadership

Upcoming elections could influence the performance of certain equity segments, according to Wells Fargo.

The bank highlighted Israeli election betting odds indicating a 27% probability of a Netanyahu victory. It suggested that a different outcome could trigger gains in lower-quality cyclical stocks sensitive to interest rates, including the Russell 2000 and consumer-related equities.

In the United States, Wells Fargo views a divided Congress following the midterms as a potentially supportive outcome for AI stocks.

State elections could also affect the expansion of data centre infrastructure. Texas represents 27% of planned gigawatt capacity, compared with 7% for Georgia, making their gubernatorial races relevant to the sector.

Rising Debt Requirements Present a Challenge for AI Expansion

Wells Fargo expects financing demands from major technology companies to remain substantial.

Credit strategist Ravi Shukla forecasts approximately $400 billion in debt issuance from the seven largest hyperscalers in 2027.

Meanwhile, the bank estimates that neocloud operators face financing gaps of around $80 billion.

Broader corporate financing requirements could reach $1.6 trillion over the coming year, equivalent to approximately 7% of M2 money supply.

The bank’s assessment suggests that future equity performance may depend less on broad positioning changes and more on companies’ ability to deliver earnings growth while managing the financial demands of expanding AI infrastructure.

Morgan Stanley expects several upcoming developments to help resolve the current downturn in US stocks, although the bank believes the S&P 500 could experience further losses before a sustained recovery begins.

Strategist Michael Wilson said equities have been undergoing a mid-cycle adjustment since June, with reduced liquidity, tighter access to capital and uncertainty surrounding the US midterm elections weighing on sentiment.

The bank’s tactical downside forecast places the S&P 500 between 7,100 and 7,200, implying a modest move below its 200-day moving average. Its base-case target for the end of 2026 remains unchanged at 8,000.

Political and AI Uncertainty Could Ease in Coming Weeks

Wilson highlighted three potential turning points for the market, beginning with concerns surrounding artificial intelligence investment.

Questions about the supply and cost of capital, AI safety and community opposition to data centre construction are expected to become more prominent over the next three to four weeks.

The November 3 midterm elections represent another important development.

“Midterm elections are typically a market headwind initially and usually then lead to very strong 6-12 month returns post the event,” Wilson wrote.

While historical patterns suggest that markets have often strengthened following midterm elections, Wilson warned that the adjustment could remain volatile for days or weeks after the event.

Tightening Financial Conditions Could Trigger a Final Market Low

Morgan Stanley considers reduced liquidity the most significant threat to equities.

Higher Federal Reserve interest rates, slower expansion of the central bank’s balance sheet and elevated energy costs have contributed to tighter financial conditions.

“Of all the concerns, we think liquidity presents the biggest risk and catalyst for a final low,” Wilson said.

He noted that Fed Chair Kevin Warsh entered office focused on bringing inflation back to 2%, although the central bank has implemented only one rate increase during his tenure.

Longer-term Treasury yields have risen by more than 100 basis points since February, creating additional pressure on financing conditions.

Market Weakness Could Encourage a Federal Reserve Pivot

Wilson suggested that tighter monetary conditions could eventually restrain economic activity and help ease inflation.

However, if financial markets experience additional stress, the Federal Reserve could face pressure to change course, potentially providing near-term support for asset prices.

“That would be asset price bullish in the short term even if it implies a more extended path to reaching the Fed’s inflation goals,” Wilson said.

Morgan Stanley’s analysis indicates that the S&P 500 may still face a final period of weakness, but the combination of reduced political uncertainty and a possible shift in financial conditions could help support a subsequent rebound.

Yardeni Research expects potential market disruptions to create buying opportunities for investors, arguing that elevated equity valuations pose a greater concern than the outlook for economic growth or corporate profits.

The firm’s latest forecasts reflect this cautious optimism. In September, it moved its S&P 500 target of 8,400 to mid-2027 and established a new objective of 7,900 for the end of 2026.

At the same time, Yardeni lowered its projected year-end forward earnings multiple to 18.6 from 19.8 but retained its forecast for 2027 earnings of $425 per share.

Strong Fundamentals Support a Positive Equity Outlook

Despite the prospect of further market corrections, Ed Yardeni believes the underlying conditions supporting US equities remain favourable.

“Since we continue to see strong fundamental underpinnings supporting the stock market, any coming scares could present buying opportunities rather than reason to lighten stock positions,” wrote Yardeni, the firm’s President and Chief Investment Strategist.

His assessment centres on four potential catalysts for market weakness: geopolitical developments, interest rate decisions, political uncertainty and concerns surrounding AI investment.

Middle East Conflict and Interest Rates Pose Risks

Yardeni expects geopolitical tensions to remain a potential source of volatility, particularly given the possibility of further escalation in the Middle East after the November 3 midterm elections.

“The good news is that geopolitical crises historically have created buying opportunities unless they cause recessions,” he said.

Federal Reserve policy could also unsettle investors.

The firm believes financial markets may be overlooking the possibility of a quarter-point interest rate increase at the Fed’s upcoming meeting or a half-point rise in December.

Although either outcome could pressure share prices, Yardeni sees the potential declines as possible entry points.

Political Developments Could Pressure Valuations

The November midterm elections represent another uncertainty for equity markets.

Betting markets increasingly favour a Democratic sweep of Congress, but Yardeni believes investors may not have fully priced in the implications.

These could include additional scrutiny of data centre investment and renewed negotiations over the US federal debt ceiling in 2027.

AI Spending Could Exceed $1 Trillion Annually

The scale of investment in artificial intelligence remains another important consideration.

Yardeni identified financing requirements, infrastructure limitations and political pressures as constraints on AI expansion, although he suggested they could help prevent unsustainable growth.

Combined capital spending by Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT) and Oracle (NYSE:ORCL) is projected to approach $780 billion in 2026.

Annual investment by the five companies is expected to exceed $1 trillion from 2027 through 2030.

“Further AI jitters therefore could set up buying opportunities rather than signal the end of the boom,” Yardeni added.

The firm’s outlook suggests investors should distinguish between temporary market disruptions and deterioration in economic fundamentals, with future selloffs potentially providing more attractive opportunities to build equity positions.

Wall Street analysts continue to anticipate further gains for US equities before the end of 2026, with their average S&P 500 target remaining close to 8,000 despite recent market turbulence.

According to a Bloomberg survey covering 19 equity strategists, the consensus year-end forecast stands at 7,967, compared with 7,976 in September.

That target suggests an additional 4.5% advance from the index’s October 23 close of 7,623.68. If achieved, it would deliver a full-year increase of approximately 16% and extend the market’s run of double-digit annual gains to four consecutive years.

Strategists Hold Their Ground Amid Rising Risks

The latest survey showed little change in individual forecasts, with just one strategist increasing their target and another reducing it.

Their confidence has persisted despite significant market pressures, including a temporary rise in the 10-year Treasury yield above 5%, energy market disruption linked to the Iran war and renewed selling in technology shares.

“Being a strategist can be challenging at the best of times. But right now it feels as if we have to update our views at minimum on a weekly basis, if not even more,” HSBC strategist Max Kettner said.

Technology Weakness Weighs on the Index

The S&P 500 has struggled to regain momentum since reaching its record closing level of 7,818.93 on October 6.

By October 23, the benchmark had retreated approximately 2.5% from that peak, with technology stocks particularly vulnerable to concerns about the financial returns from substantial AI investment.

Thursday’s decline highlighted those worries, as Meta shares dropped more than 7% and the broader index experienced its steepest single-session fall in months.

Nevertheless, Kettner suggested that lower bond yields could create opportunities for equity investors.

“Lower yields should also give valuations some reprieve. So any dips related to the above two factors – as well as further likely turmoil in France – will likely be a good buying opportunity in the next few weeks again – more for equities than credit though,” he added.

Strong Earnings Beat Rate Masks Smaller Surprises

Corporate earnings have exceeded expectations frequently during the third-quarter reporting season, but the scale of those earnings beats has been relatively modest.

FactSet data showed that 83% of the S&P 500 companies reporting by Friday had surpassed earnings-per-share forecasts, compared with a five-year average of 78%.

However, those companies represented only around 24% of the index, and their average earnings surprise was 2.1%, well below the five-year norm of 7.5%.

Wells Fargo characterised the early reporting season as exceptionally weak when measured by the size of positive earnings surprises.

Bank of America strategist Savita Subramanian emphasised the importance of corporate outlooks.

“While we expect solid results, companies’ ability to provide reassurance on the outlook amid macro headwinds will likely be a bigger driver of performance this quarter,” she said.

With the consensus forecast still pointing towards further gains, investors will be watching whether corporate earnings guidance and easing bond yields can offset concerns about AI spending and geopolitical uncertainty.

Oil prices rose sharply on Friday as renewed concerns about potential US military operations against Iran increased uncertainty over Middle Eastern energy supplies, pushing Brent crude towards its highest level in six months.

The latest gains followed reports that President Donald Trump had received a briefing on military options involving Iran, even as diplomatic contacts continued in an attempt to bring the conflict to an end.

At 04:14 ET (08:14 GMT), December Brent crude futures advanced 2.3% to $117.17 per barrel, while US West Texas Intermediate futures increased 1.8% to $103.80.

Brent reached an intraday high of $117.84, its strongest level since late April.

Both benchmarks were positioned to record a fourth consecutive monthly increase of more than 10%, reflecting the continuing influence of geopolitical risks on global crude markets.

US Military Briefing Raises Concerns About Further Escalation

Oil market sentiment deteriorated following reports that senior US defence officials had outlined possible military action against Iran during a White House meeting on Thursday.

The Wall Street Journal reported that Admiral Brad Cooper, head of US Central Command, briefed President Trump on potential operations.

Defence Secretary Pete Hegseth and other senior officials also attended the discussions.

According to the report, the meeting addressed the continuing US blockade and options for restarting major combat operations against Iran.

Trump had previously indicated that further strikes could take place after the November 3 US midterm elections.

When asked on Wednesday whether additional attacks were under consideration, he said that “anything’s possible.”

The comments reinforced uncertainty over the direction of US policy and raised the possibility of another escalation in the conflict.

For oil markets, the principal concern is that renewed military action could disrupt production facilities, export terminals or maritime transportation routes across the Middle East.

Such developments could reduce available supplies and increase the cost of transporting crude to international markets.

Washington Pursues Diplomacy as Tehran Rejects Proposed Settlement

Despite the possibility of further military action, US officials have continued efforts to restart negotiations with Iran.

Vice President JD Vance has contacted Iranian security official Mohsen Rezaei as Washington explores potential diplomatic arrangements.

Mediators have also been developing proposals aimed at establishing a framework for ending the conflict.

However, reports that Tehran rejected a proposed settlement have cast doubt on the likelihood of an agreement being reached in the near term.

The competing prospects of diplomatic progress and military escalation have contributed to volatility in crude markets.

A negotiated settlement could reduce the threat of supply disruptions and encourage traders to reassess the geopolitical premium currently reflected in oil prices.

Conversely, a breakdown in negotiations could increase expectations of further military activity and place additional pressure on regional energy infrastructure.

Investors are therefore closely monitoring political developments for indications of whether the conflict is moving towards de-escalation or renewed confrontation.

Strait of Hormuz Shipping Risks Remain a Major Market Concern

The Strait of Hormuz remains central to the outlook for global oil supplies.

The waterway connects the Persian Gulf with international shipping routes and serves as an important passage for crude exports from major Middle Eastern producers.

Any interruption to commercial traffic through the strait could affect oil shipments and create uncertainty over the availability of supplies in importing countries.

Concerns about the security of the route have intensified as Washington considers its next steps towards Iran.

Energy traders are monitoring potential threats to tankers, shipping infrastructure and export facilities.

Even without a confirmed interruption to oil flows, the possibility of disruption can influence prices as market participants account for geopolitical uncertainty.

This risk premium has helped support Brent and WTI during the recent period of escalating tensions.

Saudi Arabia Intercepts Houthi Missile Amid Refinery Threats

Additional developments in the region have added to concerns about the security of major energy facilities.

Saudi Arabia’s air defence systems intercepted a ballistic missile launched by Yemen’s Iran-aligned Houthi movement towards the kingdom’s Eastern Province, according to the Saudi Press Agency.

The interception was reported on Thursday, following claims by the Houthis that they had targeted the Ras Tanura refinery earlier in the week.

The refinery is an important component of Saudi Arabia’s energy infrastructure, making threats against the facility significant for international oil markets.

The latest incidents highlight the continuing risk that attacks could affect processing facilities, storage sites and export operations.

Market participants remain sensitive to any developments that could disrupt Saudi production or the movement of crude from the region.

Although the extent of any immediate impact remains uncertain, the continuing security threats have contributed to the upward pressure on oil prices.

Unexpected US Inventory Draw Adds to Bullish Oil Sentiment

Oil prices also received support from US supply data showing an unexpected decline in commercial crude inventories.

The Energy Information Administration reported that US crude stocks fell by 1.9 million barrels during the week ended October 23.

Total commercial inventories declined to 410.6 million barrels.

The reduction contrasted with analyst expectations for a modest increase, suggesting that the US market was tighter than anticipated.

Falling inventories can support crude prices by indicating reduced available supply, particularly when markets are already concerned about international disruptions.

The latest figures therefore reinforced the positive price momentum generated by geopolitical developments.

The combination of lower US stockpiles and uncertainty surrounding Iran has strengthened expectations that oil prices could remain elevated in the near term.

Oil Outlook Hinges on Diplomatic Progress and Regional Security

The direction of crude prices will continue to depend heavily on developments in the Middle East.

Further diplomatic engagement between Washington and Tehran could ease concerns about military escalation and reduce the risk premium associated with regional supply disruptions.

However, additional strikes, missile attacks or threats to shipping through the Strait of Hormuz could increase market uncertainty and support higher prices.

Investors will also monitor US inventory reports for indications of changing supply conditions.

With Brent trading above $117 per barrel and having reached its highest level since late April, geopolitical developments remain a major influence on market sentiment.

Both Brent and WTI were heading towards a fourth consecutive monthly gain exceeding 10%, highlighting the strength of the recent advance.

The balance between diplomatic negotiations, military developments and physical oil availability will remain central to the near-term outlook for international crude prices.

Gold prices moved below $4,000 an ounce on Friday as persistent US inflation, elevated energy costs and expectations of additional Federal Reserve interest rate increases continued to weigh on precious metals.

The decline left bullion heading for a second consecutive monthly loss, with investors also responding to renewed volatility in technology stocks and concerns over the financial sustainability of artificial intelligence infrastructure spending.

Spot gold declined 0.7% to $3,992.46 an ounce at 23:50 ET (03:50 GMT), while US gold futures fell 0.8% to $4,002.22.

Silver dropped 1.7% to $51.29 an ounce, and platinum lost 1.8% to $1,460.79.

Spot palladium declined 1.7% to $989.46, while palladium futures weakened 2% to $984.75.

The US Dollar Index slipped 0.3% to 101.79, but the currency’s decline failed to provide meaningful support for gold as monetary policy concerns dominated trading.

Gold Faces Monthly Losses as Middle East Conflict Supports Energy Prices

Gold was on track to lose more than 3% in October, extending a period of weakness despite continuing geopolitical uncertainty.

Renewed fighting in the Middle East has supported energy prices and increased concerns that inflation could remain elevated.

Oil prices rose amid indications that the United States could resume military strikes against Iran following the midterm elections scheduled for the following week.

The prospect of further military action has raised questions about potential disruptions to energy supplies and the implications for global inflation.

Higher oil prices can contribute to broader increases in consumer and business costs, potentially complicating efforts by central banks to bring inflation under control.

Although geopolitical instability often supports demand for gold, the possibility that persistent inflation could lead to higher interest rates has limited the metal’s appeal.

Investors have consequently placed greater emphasis on monetary policy expectations than on gold’s traditional role as a defensive asset.

US PCE Inflation Data Adds to Pressure on Precious Metals

The latest US inflation figures provided further evidence that price pressures remain a concern for Federal Reserve policymakers.

The personal consumption expenditures price index increased 0.5% in September, its largest monthly rise since March.

The PCE index is closely monitored by the Federal Reserve when assessing inflation trends and determining the appropriate level of interest rates.

The stronger reading reinforced market expectations that the central bank could implement another rate increase before the end of 2026.

At its latest meeting, the Federal Reserve maintained interest rates at their existing level.

However, Chair Kevin Warsh did not rule out additional tightening, leaving investors uncertain about the timing and extent of future policy adjustments.

For gold, the prospect of higher interest rates represents an important challenge.

Unlike government bonds or other interest-bearing assets, bullion does not provide regular income.

As borrowing costs rise, the opportunity cost of holding gold generally increases, potentially reducing investor demand.

The resulting pressure has outweighed some of the support normally associated with a weaker US dollar.

Equity Market Volatility Creates Additional Selling Pressure

Developments in global stock markets have also influenced gold trading.

According to ANZ, the metal remains vulnerable to broader asset sales as investors reassess the financial returns expected from substantial artificial intelligence investment programmes.

Technology stocks declined for a second consecutive session following disappointing earnings announcements from major companies.

Alphabet was among the businesses experiencing sharp share price losses as investors questioned the potential profitability of continued large-scale spending on AI infrastructure.

The previous week’s technology-driven selloff had pushed gold to its lowest price since July.

Some market participants reduced their gold holdings to raise cash and offset losses elsewhere in their investment portfolios.

Such activity can create short-term selling pressure even when broader market uncertainty would ordinarily support demand for defensive assets.

Following the earlier decline, gold prices have traded around the $4,000 threshold, with buying interest emerging during periods of weakness.

Physical Gold Demand Helps Stabilise Prices

Chinese households and long-term investors have provided an important source of demand as gold prices have retreated.

Purchases during market declines have helped establish periods of support around $4,000 an ounce.

This buying interest has partly offset selling pressure from investors responding to equity market volatility and changing interest rate expectations.

However, the outlook remains uncertain as markets assess the potential for further monetary tightening in the United States.

Developments in the Middle East could also influence gold through their effects on oil prices, inflation expectations and investor sentiment.

Movements in Treasury yields and the US dollar will remain important indicators for bullion traders.

Whether gold can sustain support near $4,000 may depend on the strength of physical demand relative to the pressure created by expectations of higher interest rates.

Copper Weakens as Investors Reassess AI Infrastructure Demand

The decline in technology shares has also affected industrial metals, with copper facing renewed pressure.

ANZ reported that the selloff in technology stocks had increased risk aversion across commodity markets, weighing on base metal prices.

Copper had previously benefited from expectations that expanding investment in artificial intelligence infrastructure would increase demand for electrical equipment and data centre construction.

The metal is widely used in power distribution systems, making it an important component of the infrastructure required to support energy-intensive computing facilities.

However, growing concerns about the cost and profitability of AI projects have prompted investors to reassess the pace of future infrastructure development.

This shift in sentiment has contributed to weaker copper prices despite continued physical demand.

Chinese buyers have remained active in securing supplies as market availability tightens.

The Yangshan copper premium rose to a record $200 per tonne, reflecting strong demand for imported copper in China.

The increase indicates that underlying physical market conditions remain supportive even as financial investors respond to uncertainty surrounding technology investment.

The contrasting signals highlight the difference between near-term market sentiment and demand from industrial consumers.

For precious and industrial metals alike, investors will be monitoring inflation data, interest rate expectations and developments in the technology sector.

Gold’s movement below $4,000 underscores the influence of monetary policy concerns, while copper’s performance illustrates how uncertainty over artificial intelligence investment is affecting a broader range of commodity markets.