Markets Open November with AI Buzz, But Broader Rally Falters

Stocks kicked off November with mixed results as renewed enthusiasm for artificial intelligence lifted big tech, while the broader market showed signs of fatigue. Amazon’s $38 billion, seven-year cloud deal with OpenAI energized the AI trade and pushed the Magnificent Seven up over 1%, but more than half of the S&P 500 declined on the day. Bond yields ticked higher, crypto tumbled, and concerns about narrow market breadth and valuation continue to hang over the rally.

Key Headlines & Market Movers

• AI Trade Reignites on Amazon-OpenAI Deal: Amazon surged 4% after announcing a $38 billion deal with OpenAI, which will use AWS infrastructure and Nvidia chips over seven years. This move reinforces confidence in the durability of AI spending, boosting other mega-cap techs including Tesla and Alphabet. Microsoft also made headlines with a separate $10 billion cloud deal with IREN. However, only a few tech names are carrying the market, underscoring concentration risks.

Fed Uncertainty Keeps Markets on Edge: Fed officials offered mixed messages on the rate path. While Mary Daly kept the door open to a December cut, others like Austan Goolsbee emphasized inflation concerns. Markets are still leaning toward another cut this year, but conviction is waning. Meanwhile, economic data remains limited due to the ongoing government shutdown, leaving investors to parse private indicators like ADP’s jobs report later this week.

• Earnings Beat, But Reactions Are Muted: Earnings continue to surprise to the upside, profits are up nearly 13% YoY vs. expectations for 7%. Yet investors are rewarding beats less and punishing misses more, reflecting high expectations. Palantir's bullish guidance lifted sentiment after hours. With over 70% of S&P 500 companies reporting, the strongest results have come from tech and health care, while consumer sectors lag.

Market Breadth Weak Despite Seasonal Tailwinds: The S&P 500 and Nasdaq extended their win streaks to six and seven months respectively, benefiting from seasonal strength. Still, the equal-weighted S&P fell, and fewer stocks are participating in the rally. Analysts warn that narrow leadership and overbought conditions increase the risk of a pullback. However, historical data supports continued gains into year-end when markets have already posted strong YTD returns by October.

S&P 500 Sector Performance

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Looking Ahead

Investors remain bullish into the holiday season, supported by strong earnings, easing inflation pressures, and the potential for more Fed cuts. But with sentiment increasingly one-sided and market breadth deteriorating, even a minor negative surprise could jolt markets. A temporary pullback would likely be seen as a buying opportunity, especially in tech and AI, which continue to dominate the investment narrative.

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