Morning in New York: AI sector leaders drive the S&P 500 to a record high

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 question mark hanging over the upcoming session will be whether the market can continue to rise near historic highs while Treasury yields remain high. Price pressures in the services sector, as highlighted by ISM data, are limiting the scope for revising expectations regarding the Fed’s future policy path. The rebound in the S&P 500’s balanced index yesterday is a positive sign, but a single session is not enough to confirm a broader-based rally. Continued growth does not necessarily require a recovery in all lagging segments, but it would look more convincing if the proportion of stocks moving higher were to increase. Tech leaders are driving stock indices, but the sector has broken away from its own medium-term trend: XLK is trading 21.6% above its 200-day moving average, which corresponds to the 94th percentile over the past five years. This alone does not indicate an imminent reversal, but it does make the uptrend more sustainable if other sectors gradually join the technology leaders.

The normalization of hydrocarbon exports from the Middle East and the release of strategic energy reserves are reducing the risk premium in oil prices. WTI prices are trending downward today, just as they did two days ago. However, due to attacks on Saudi Arabia’s energy infrastructure, the threat of supply disruptions remains. A further decline in oil prices will help reduce inflation expectations and corporate spending.

This Tuesday will see the release of ADP’s weekly employment data, as well as August trade balance figures. The consensus forecast calls for the deficit to widen from $88.6 billion in July to $102 billion. Demand at the auction of three-year Treasuries will provide an additional indicator.

Futures on U.S. indices are not showing any significant movement. We assess the risk balance for the upcoming session as neutral, with moderate volatility. The S&P 500 is about 5 percentage points away from its all-time high, so even a small rally by the “heavyweights”—primarily Nvidia (NVDA)—will be enough for the benchmark to set a new record, following the Nasdaq-100. Price movements will continue to depend on AI sentiment, oil price dynamics, the bond market’s reaction to macroeconomic data, and the results of the aforementioned Treasury auction.

— OpenAI is in talks with UAE-based funds, including MGX, regarding participation in a $30 billion funding round. Investors are discussing the formation of a syndicate, in which BlackRock (BLK) could potentially participate, to invest up to $10 billion in the company. Raising these funds will expand the financing options for AI projects, though the final terms have not yet been agreed upon. A successful fundraising round for OpenAI could boost shares of Oracle (ORCL), which is building data centers for the AI lab.

— Option Care Health (OPCH) shares rose 21.4% in after-hours trading following reports of an impending M&A deal with McKesson (MCK) and Clayton, Dubilier & Rice. The acquisition value could exceed $5 billion, including debt. The acquisition of the provider of home and outpatient infusion therapy will allow McKesson to expand its presence in healthcare services. The agreement has not yet been signed, and negotiations may ultimately fail.

— Vaxcyte (PCVX) shares fell 3.8% following news of plans to raise $500 million through a stock offering and prepaid warrants, and another $500 million through the issuance of convertible bonds maturing in 2032, which implies potential dilution of shareholders’ stakes. The issuer intends to use the proceeds to develop the VAX-31 vaccine, expand production, and prepare for the commercialization of its products. The final terms of the offerings have not yet been determined.

— Ariel Investments, an investment firm that owns 5.4% of Mattel (MAT), has urged the company’s management to explore strategic alternatives for growth. The investor believes that a potential buyer of Mattel would be willing to pay a substantial premium. Previously, Authentic Brands Group had considered acquiring the company at a price of more than $20 per share. The likelihood of a deal is increasing; however, MAT’s stock price will depend on whether a formal offer is made and whether the board of directors is willing to enter into negotiations.

— DayOne Data Centers has filed to go public on Nasdaq under the ticker symbol DODC. The company has 4.6 GW of capacity across ten regions, of which approximately 2.3 GW is under contract (primarily with seven global technology and cloud corporations). The price and size of the offering have not yet been determined, but it could provide the market with a new valuation benchmark for the data center sector and, indirectly, for Equinix (EQIX) and Digital Realty (DLR).

Trading on October 5 on U.S. stock exchanges ended in positive territory. The S&P 500 rose 0.66%, the Nasdaq-100 gained 0.87%, the Dow Jones added 0.18%, and the Russell 2000 gained 0.5%. The top gainers were materials (XLB: +1.31%), telecommunications (XLC: +1.17%), and energy (XLE: +1%). Only the real estate sector (XLRE: -0.34%) closed slightly in the red. The upward trend was not limited to the largest companies: the equally weighted RSP (+0.66%) was virtually on par with the SPY (+0.69%). At the same time, capital rotation across sectors remained quite normal: the spread in returns was 1.75 percentage points, and the standard deviation (z-score) was -0.52. This indicates broadening market support during the session but does not yet signal a trend reversal following seven weeks of declines in the RSP.

The main feature of the session was the resilience of stocks in the face of further increases in yields on long-duration Treasuries. The yield on 10-year Treasury bonds rose by 3 basis points to 5.31%. The ISM Services Purchasing Managers’ Index (PMI) for September fell from 55.4 to 54.9 points, against a consensus estimate of 55 points, while the prices sub-index rose to 74—its highest level since July 2022. Thus, stocks’ positive performance was not driven by a general easing of financial conditions. Investors maintained their appetite for risk despite a combination of high cost of capital and sustained price pressure.

Megacaps continued to drive the indices. Nvidia (NVDA: +2.12%), which hit an all-time high, and Microsoft (MSFT: +1.48%) accounted for about 26 basis points of the S&P 500’s gain.

Meanwhile, stocks in the technology sector moved in different directions. Intel (INTC: -2.63%) shares fell after the company confirmed preliminary talks regarding its potential participation in TSMC’s (TSM: +2.75%) Terafab project, which set a new market capitalization record. News of M&A deals emerged as a notable corporate driver. PTC (PTC: +33.5%) shares soared on reports of an acquisition by Schneider Electric at $205 per share, valuing the company at approximately $22.6 billion. RXO (RXO: +22.5%) shares reacted with a sharp rise to news of the acquisition of C.H. Robinson (CHRW: -10.9%). The premium offered to shareholders of the acquired companies supported the stock prices, but the deals themselves were not viewed as an unconditional positive for buyers.

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