S&P 500 cuts losses as dip buying in AI stocks sparks tech rebound

U.S. equities experienced mixed trading, with the S&P 500 paring losses and the NASDAQ Composite gaining 0.5% as investors bought the dip in AI-related stocks, including NVIDIA, ahead of its critical earnings report. Concurrently, expectations for a December Federal Reserve interest rate cut sharply declined to a 50% probability from 67.8% last week, influenced by hawkish remarks from several Fed officials, despite a slight easing in U.S. jobless claims. In corporate news, Applied Materials projected reduced spending on chipmaking gear in China due to export controls but anticipated an AI-driven sales boost, while Warner Bros Discovery shares rose on acquisition interest and StubHub slumped after its CEO declined to provide guidance.

Analysis

U.S. equities exhibited mixed performance, with the S&P 500 paring losses and the NASDAQ Composite gaining 0.5%, primarily driven by dip buying in AI-related stocks like NVIDIA, Oracle, and Palantir. This buying occurred despite Barclays flagging largely cautious investor sentiment ahead of NVIDIA's critical quarterly results, which are expected to gauge AI demand health.

Applied Materials provided a nuanced outlook, anticipating a $600 million revenue hit in fiscal 2026 from expanded U.S. export restrictions on chip equipment to China. However, the company also projected increased sales of its semiconductor gear in the second half of next year, fueled by a rise in business expenditures on AI.

Concurrently, expectations for a December Federal Reserve interest rate cut sharply declined to a 50% probability from 67.8% last week, influenced by hawkish remarks from Fed officials like Neel Kashkari, Alberto Musalem, and Beth Hammack. This shift occurred despite a slight easing in U.S. jobless claims to 227,543, indicating a more cautious monetary policy stance.

In corporate news, Warner Bros Discovery shares rose on reports of acquisition interest from Paramount, Comcast, and Netflix, while StubHub slumped after its CEO declined to provide current quarter guidance following its IPO. Walmart also saw shares fall after announcing a CEO transition for early 2026.

Key Decisions for Investors

• Closely monitor NVIDIA's upcoming earnings report for definitive signals on AI demand and its broader impact on the semiconductor sector, particularly given cautious sentiment and Applied Materials' mixed outlook.
• Re-evaluate portfolio interest rate sensitivity and duration exposure, as expectations for a December Fed rate cut have significantly diminished, signaling a potentially tighter monetary policy environment.
• Assess exposure to companies with significant China revenue or supply chain dependencies in the semiconductor space, balancing the impact of export controls against the long-term growth potential from AI-driven demand.