CNBC Daily Open: The Fed spoke, but AI roared

U.S. equity markets, particularly the S&P 500 and Nasdaq, surged to new record highs, primarily propelled by optimism surrounding artificial intelligence and overshadowing Federal Reserve rate cut discussions and government shutdown concerns. While the Fed indicated a strong inclination for two rate cuts by end-2025, the Bank of England warned that AI company valuations appear "stretched," signaling potential market vulnerability if optimism around AI's impact wanes. This dichotomy highlights a market driven by AI momentum amidst growing concerns over valuation sustainability.

Analysis

Taken from CNBC’s Daily Open, our international markets newsletter — Subscribe today Investors barely flinched Wednesday, despite the release of the Fed minutes and the ongoing U.S. government shutdown. Discussions on rate cuts and shutdowns seemed to be mere background noise compared to the real force moving markets now, namely, artificial intelligence. AI stocks such as Nvidia are now masters of the market narrative, driving record highs across the S&P 500 and Nasdaq. On the flip side, Oracle became the proverbial straw that broke the S&P500's seven-day winning streak Tuesday stateside. But, to paraphrase Spider-Man, with great power, comes great scrutiny. The Bank of England warned that valuations appear "stretched," particularly for AI companies, adding that equity markets could be particularly exposed should expectations around the impact of AI become less optimistic. For now, Wall Street remains in hyperdrive, fueled by AI's promise and the hope that the Fed will keep cutting rates. Investors may soon need to reckon with whether this AI-fueled rally is built on solid ground or it's swinging toward a cliff. What you need to know today Israel, Hamas reach 'first phase' plan. U.S. President Donald Trump said that both parties have "signed off" on the first phase of his peace plan. Under the plan, Trump said that all hostages will be released and Israel will withdraw forces to an "agreed upon line." Fed sees two rate cuts by end-2025. The central bank's officials in September were strongly inclined to lower interest rates, with the only dispute seeming to be over how many cuts were coming, meeting minutes released Wednesday stateside showed. Nvidia CEO surprised at 'clever' AMD deal. CEO Jensen Huang said Wednesday that he's surprised Advanced Micro Devices offered 10% of itself to OpenAI as part of a multibillion-dollar partnership announced earlier this week. "I'm surprised that they would give away 10% of the company before they even built it. And so anyhow, it's clever, I guess," he said. S&P 500 and Nasdaq rebound to record. Both indexes notched new all-time intraday and closing highs Wednesday stateside. The broad index was powered by the information technology, utilities and industrial sectors. Over in Europe, stocks ended higher after the EU proposed slashing its tariff-free steel import quota. [PRO] Best ways to gain gold exposure. As the bullion hits new highs, industry experts say there is still room for gold to to run, with one analyst saying that gold could reach $5,000 per ounce by 2026. Here are the best ways to gain exposure to the yellow metal. And finally... Google adds limits to 'Work from Anywhere' policy that began during Covid Google is continuing to put restrictions on remote work, this time with a popular policy called "Work from Anywhere" that was established during the Covid pandemic. The policy has allowed employees to work from a location outside of their main office for up to four weeks per calendar year. According to internal documents viewed by CNBC, working remotely for even a single day will now count for a full week. — Jennifer Elias The S&P 500 and Nasdaq both reached new all-time intraday and closing highs, primarily propelled by the artificial intelligence sector, with NVDA explicitly mentioned as a market leader. This AI-fueled rally largely overshadowed other significant developments, including the release of Federal Reserve minutes and ongoing U.S. government shutdown concerns. The S&P 500's previous seven-day winning streak was notably broken by Oracle's performance. Despite market exuberance, the Federal Reserve's minutes indicated a strong inclination among officials for two interest rate cuts by the end of 2025. Concurrently, the Bank of England issued a warning that valuations, particularly within AI companies, appear "stretched," suggesting potential market vulnerability if optimism surrounding AI's impact diminishes. This creates a dichotomy between monetary policy easing expectations and valuation risks. Nvidia CEO Jensen Huang expressed surprise at AMD's decision to offer 10% to OpenAI in their recent multibillion-dollar partnership, indicating competitive dynamics and valuation perceptions within the AI chip space. Separately, gold prices reached new highs, with analysts projecting further upside potential to $5,000 per ounce by 2026, signaling a potential safe-haven or inflation hedge play amidst market volatility.

Key Decisions for Investors

• Evaluate current portfolio exposure to AI-related stocks, considering the Bank of England's warning on stretched valuations against the sector's strong momentum and positive sentiment around NVDA.
• Monitor Federal Reserve communications closely for any shifts in the anticipated two rate cuts by end-2025, as this monetary policy outlook is a key market support.
• Consider diversification into commodities like gold as a potential hedge, given its current uptrend and analyst projections for continued appreciation.
• Assess individual company fundamentals and competitive dynamics, especially in the technology sector, noting Oracle's impact on market streaks and NVDA CEO's comments on AMD's strategic partnership.