Morning in New York: A New Stress Test for the AI Rally

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

The main focus of the session will be whether investors are ready to return to AI-sector stocks following yesterday’s sell-off. The correction was triggered by reports that OpenAI’s annual revenue, projected at current sales rates through the end of September, was approaching $50 billion, although earlier estimates had suggested $70 billion. However, according to updated data from Bloomberg, the $70 billion figure is the company’s target for the end of 2026, not an actual figure already achieved. At the same time, OpenAI’s revenue grew by 77% in the third quarter, while revenue in the enterprise segment soared by 107%, indicating that demand remains strong. Nevertheless, investors are concerned about the company’s ability to finance large-scale, multi-year contracts for computing power. Tech stocks in the region also came under pressure during the Asian trading session.

This Friday, the University of Michigan will release its preliminary estimate of the Consumer Sentiment Index for October (consensus: 47.6 points; September: 48.1). Market participants are most interested in the inflation expectations component. A further rise in these expectations, driven by high oil prices, will strengthen the case for another rate hike at the Federal Reserve’s October 27–28 meeting. A deterioration in sentiment without a rise in inflation expectations would be an argument in favor of a pause.

Brent remains above $100 per barrel. Donald Trump’s statement that he would refrain from striking Iran until the midterm elections has somewhat eased geopolitical tensions, however, Tehran has no intention of halting uranium enrichment, and shipping through the Strait of Hormuz remains restricted.

Before the market opens, New Horizon Aircraft (HOVR) and Delta Air Lines (DAL) will report their quarterly earnings. Delta’s own forecast called for adjusted EPS for the third quarter in the range of $2 to $2.5. The focus will be on how rising jet fuel prices will affect the fourth-quarter forecast. Next week, the major banks will continue the earnings season.

Yesterday’s capital outflow from the technology sector appears to be a long-awaited positive development (9 out of 11 sectors outperformed the S&P 500 in terms of growth), but it does not yet indicate a sustained extension of the rally. For example, the XLP ETF, composed of shares of consumer staples companies, rose 2.11% yesterday, but its price remains below the 200-day moving average. Meanwhile, the broad market index is trading near its annual high, while the median sector lags behind its own peak by 6.7 percentage points more than the benchmark. This gap is wider than in 98% of observations over the past five years. To forecast the situation, it is important to determine whether the underperforming sectors will be able to continue their broad-based recovery in the coming sessions.

U.S. index futures are trading slightly higher, with the Nasdaq 100 leading the gains. Traders are showing a tendency to buy into the pullback in many AI stocks. We expect moderate volatility and assess the risk balance as neutral.

— Shares of AT&T (T), T-Mobile US (TMUS), and Verizon (VZ) are fluctuating within a 6% range following news that SpaceX (SPCX) has agreed to purchase a nationwide portfolio of 800 MHz spectrum from Grain Management, totaling up to 14 MHz of paired spectrum. The terms of the deal have not been disclosed, and it requires approval from the Federal Communications Commission (FCC) to close. The low-frequency spectrum, which most smartphones support without modifications, will allow Starlink Mobile to supplement its satellite communications with a terrestrial network that provides indoor coverage and compete directly with the largest carriers. Against this backdrop, SPCX shares are up 4%.

— Humana (HUM) shares are up about 13%. The Centers for Medicare & Medicaid Services (CMS) has released its ratings for Medicare Advantage plans for 2027: the rating for insurer H5216’s largest contract, covering more than 2 million customers, has risen from 3.5 stars to 4 stars. This restores the contract’s eligibility for bonus payments, which will be reflected in 2028 revenue. For Humana, which in 2026 had only about 20% of its customers in plans rated 4 stars or higher, this is a key step toward restoring its margins.

— Alignment Healthcare (ALHC) shares are falling by nearly 23%. The rating for its largest California contract, H3815—which accounts for about 75% of its clients—has been downgraded from 4 stars to 3.5 stars, which will result in the loss of bonus payments in 2028. The company intends to challenge this decision both administratively and in court. Due to the concentration of clients in a single contract, the impact on 2028 earnings could be significant, although the rating downgrade will not affect revenue for 2026–2027.

— CVS Health (CVS) shares are down about 1.7%: the percentage of Aetna customers enrolled in plans rated 4 stars or higher for 2027 fell from over 81% a year earlier to about 70%.

Trading on October 8 on U.S. stock markets ended with mixed results. The S&P 500 fell 0.47%, the Nasdaq 100 dropped 1.39%, the Dow Jones rose 0.1%, and the Russell 2000 gained 0.03%. The decline was not widespread: the balanced RSP (+0.6%) outperformed the SPY (-0.42%) by more than 1 percentage point. There were 1.71 times as many stocks gaining on the NYSE as there were declining. The technology sector (XLK: -1.79%) was among the underperformers: selling pressure on stocks of semiconductor manufacturers—including memory chip makers—and AI infrastructure providers, such as Corning (GLW: -6.4%) and Oracle (ORCL: -5.5%), coincided with the aforementioned reports of lower-than-expected revenue at OpenAI. Meanwhile, IT consulting firms Accenture (ACN: +6%) and Gartner (IT: +5.2%) saw their shares rise.

Energy stocks (XLE: +2.97%) led the gains, buoyed by oil prices. Hydrocarbon prices retreated from their highs following Donald Trump’s announcement that he would delay strikes against Iran, but the rally continued. The non-cyclical consumer goods sector (XLP: +2.11%) moved higher, thanks in part to PepsiCo (PEP: +3.7%), whose quarterly results beat consensus estimates, although management did slightly lower its full-year forecast.

Treasury yields, which had been rising at the start of the session, turned lower. Yields on 2-year Treasuries fell by 2 basis points to 4.75%, on 10-year Treasuries by 5 basis points to 5.23%, and the 30-year yield to 5.6%, making the yield curve flatter. The $22 billion auction of 30-year bonds saw a minimal “tail” of 0.1 basis points amid strong demand across the board. Alberto Musalem, president of the St. Louis Federal Reserve Bank, spoke in favor of raising rates in the next six to nine months.

The number of initial claims for unemployment benefits fell from 199,000 to 197,000, the lowest level since mid-July, compared with a consensus estimate of 200,000. The number of continuing claims rose from 1,699,000 to 1,716,000, compared with a market consensus of 1,700,000. Wholesale inventories in August, according to the final estimate, increased by 0.5% month-over-month (preliminary figure and consensus: +0.7%).

The selling pressure was concentrated in the megacaps. Nvidia (NVDA), Micron (MU), and Broadcom (AVGO), as well as Amazon (AMZN) and Microsoft (MSFT), dragged the SPY down by 64 basis points, which exceeded the broad-market index’s overall decline. The five stocks with the largest positive contributions, including Apple (AAPL) and Exxon Mobil (XOM), added only 17 basis points. Micron shares, which had risen 4.1% the previous day, turned lower: Samsung Electronics’ strong results only underscored the high bar for expectations in the sector. The main feature of the session was rotation, rather than risk aversion. Shares of large “growth” companies fell 1.23%, while stocks rose across all market-cap segments. Unlike the situation on October 7, when high long-term interest rates put pressure on smaller issuers, their decline coincided with the broader market’s outperformance.

This article was AI-translated and verified by a human editor