US Markets Recover Despite Early Losses
On Friday, US stocks made a noteworthy recovery after a shaky start, closing mostly higher. This turnabout can be attributed to rising optimism surrounding ongoing discussions among lawmakers aimed at concluding the government shutdown, which has created significant uncertainty in the market.
Looking at the broader picture, however, the week has been challenging for the stock market. The Nasdaq 100 suffered a substantial decline of 3.09%, marking its worst weekly performance since April. The pullback was primarily driven by pressures on artificial intelligence (AI) stocks, which have faced scrutiny amidst investor concerns. Similarly, the S&P 500 fell by 1.63%, while the Dow Jones experienced a loss of 575 points, translating to a decrease of 1.21%.
Government Shutdown Breakthrough Lifts Sentiment
The ongoing US government shutdown—the longest in recent history—has now stretched into its 40th day. However, optimism surged after the Senate made decisive strides toward a resolution by advancing a bipartisan continuing resolution (CR) in a crucial procedural vote on Sunday night. This move garnered the support of 12 Democratic senators, surpassing the necessary 60-vote threshold.
If all goes according to plan, the final vote will likely occur on Monday morning (10 November), and with swift approval from President Trump, the government could reopen by midday. This resolution would provide funding through January 30 and encompass crucial appropriations for Veterans Affairs, Agriculture, and the legislative branch, addressing concerns among progressives by ensuring a Senate vote on Affordable Care Act tax credit extensions in December without immediate commitment.
This positive momentum is further bolstered by President Trump’s renewed pledge to distribute at least $2000 in tariff-funded dividend checks to the majority of Americans, excluding high earners. Early indications of the Nasdaq 100 futures rising by 0.60% to 25,316 in early Asian trading illustrate the uplift in sentiment. While the anticipated reopening is expected to restore critical government services and alleviate economic uncertainties, the feasibility of the rebate plan remains contingent on congressional approvals and sufficient tariff revenue, which casts some doubt on its timely execution.
AI Spending Concerns Persist
Despite some hopeful developments, persistent concerns surrounding AI spending versus revenue returns have continued to loom large over the markets. This unease escalated following remarks from OpenAI’s chief financial officer (CFO), who suggested that government subsidies might be necessary for the company’s borrowing, framing AI as a ‘strategic’ sector.
The growing noise around AI funding reflects a shifting landscape, where many firms are increasingly relying on debt and off-balance-sheet mechanisms instead of stable cash flow for financing. Currently, the AI growth narrative appears robust over the medium term, but escalating concerns about high capital expenditures and their only vague relationship to short-term revenues have nudged market sentiment toward moderating expectations.
Earnings Season Update and Rate Outlook
As we enter the final stretch of the third-quarter (Q3) earnings season, major reports set to be released include updates from CoreWeave, Cisco, Disney, and Quantum Computing. With around 88% of S&P 500 companies already reporting, about 80% have exceeded Q3 earnings estimates by an average of 9%, an improvement compared to 73% over the past four quarters. Additionally, 74% of these companies surpassed revenue forecasts, an increase from 64%, with an average beat of 2.8%.
In terms of interest rates, market expectations are beginning to price in 18 basis points (bp) worth of cuts for the forthcoming December Federal Open Market Committee (FOMC) meeting. Overall, the market anticipates around 85 bp of easing from the Federal Reserve (Fed) through December 2026, suggesting a shift toward a more accommodative monetary policy in order to support economic stability.
