A few giant stocks carried Monday's bounce
The fund that gives every S&P 500 company the same weight fell, utilities lost 2%, and the question of who pays for the AI build-out is still open.
Key takeaways
A few very large technology and consumer stocks carried the rebound on Monday, Oct. 19. The fund that gives every company in the S&P 500 the same weight fell. Utilities, homebuilders and long-term Treasury prices fell too.
State Street SPDR S&P 500 ETF SPY rose 0.4%. Invesco S&P 500 Equal Weight ETF RSP fell 0.3%. RSP holds the same index, with each company at the same size, so one giant cannot carry it the way the largest companies carry SPY.
Invesco QQQ Trust, Series 1 QQQ rose 1.2%. That recovered less than half of Friday's 2.5% drop. Over five sessions, QQQ is still down 3.7%.
Amazon rose 5.0% after Morgan Stanley analyst Brian Nowak named it a top pick and raised his price target to $350 from $335, Yahoo Finance reported. Tesla rose 3.8%. Those two did nearly all of the lifting in State Street Consumer Discretionary Select Sector SPDR ETF XLY, which rose 1.8%.
Amazon and Tesla supplied the day's gain in XLY
VanEck Semiconductor ETF SMH rose 1.6%, and is still down 7.2% over five sessions. State Street Technology Select Sector SPDR ETF XLK rose 1.3%.
QQQ and SMH recouped less than half of Friday's drop
- QQQ · 96.29
- SMH · 92.8
Utilities and homebuilders fell with long Treasuries
State Street Utilities Select Sector SPDR ETF XLU fell 2.0%, the weakest of State Street's 11 sector funds.
Eight of 11 sector funds finished lower Monday
iShares 20+ Year Treasury Bond ETF TLT, which holds U.S. Treasury bonds maturing in more than 20 years, fell 0.7%. Long-bond prices slipped while the largest stocks rose.
The National Association of Home Builders said its October confidence index, the NAHB/Wells Fargo Housing Market Index, fell three points to 29, the lowest reading since June 2012. Trading Economics put the consensus at 32.
NAHB said 43% of builders cut prices in October, the highest share it has recorded for that figure since 2020, the window it uses.
"Mortgage rates have climbed well above 7% in recent weeks, and higher gas prices and inflation have further weakened buyer traffic across much of the country," NAHB Chairman Bill Owens said.
iShares U.S. Home Construction ETF ITB fell 1.7%.
Who pays for the AI build-out is still open
The question under last week's selloff is how the artificial-intelligence build-out gets paid for. Reuters reported Monday that last week's tech drop reflected concern over how that spending will be financed, and over whether higher interest rates will curb it.
On Oct. 15, Reuters reported that bonds of CoreWeave, a data-center company that borrows heavily to buy the chips it rents out, had fallen to distressed levels. Axel Rudolph, chief technical analyst at IG Group, told Reuters that day that the selling looked more like a question about funding than a collapse in appetite for AI computing.
CoreWeave did not answer it on Monday. The shares finished down 0.4%. They traded as much as 7.3% above Friday's close and also touched a 52-week low of $59.25.
Federal Reserve Chair Kevin Warsh spoke about that same spending last week, at International Monetary Fund meetings in Bangkok. Reuters reported that he called artificial-intelligence investment a shock to prices and demand, even as he sees the wealth and productivity gains "over the horizon."
"If you're a central banker and you're in the business of trying to ensure stable prices and full employment, you've got to recognize this as a shock," Warsh said.
Reuters reported that the industry is expected to invest about $1 trillion next year, roughly 3% of gross domestic product. September consumer prices were already up 3.7% from a year earlier, the Bureau of Labor Statistics said on Oct. 14, and 2.6% excluding food and energy. The Federal Reserve meets Oct. 27-28.
Sam Stovall, chief investment strategist at CFRA Research, pointed to higher interest rates and to CoreWeave's problems. He told Reuters those were "sending shockwaves through the market."
"I don't think that is over just yet," Stovall said.
Meta Platforms and Tesla report Wednesday, Reuters said. Stovall said investors will be evaluating which companies are most vulnerable. That is the same unfinished argument: who can pay for the build-out if the spending is already an inflation shock.
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Frequently asked questions
Which stocks carried Monday's bounce?
Amazon rose 5.0% and Tesla rose 3.8%, and those two did nearly all the lifting in State Street Consumer Discretionary Select Sector SPDR ETF.
Did the equal-weight S&P 500 fund rise too?
No, Invesco S&P 500 Equal Weight ETF fell 0.3% while State Street SPDR S&P 500 ETF rose 0.4%, because each company is held at the same size.
What happened to utilities?
State Street Utilities Select Sector SPDR ETF fell 2.0%, the weakest of State Street's 11 sector funds, while iShares 20+ Year Treasury Bond ETF fell 0.7%.
Is the question of who pays for the AI build-out settled?
No, CoreWeave finished down 0.4%, and Sam Stovall said higher rates and CoreWeave's problems are still sending shockwaves through the market.
