Resilient markets climb to new record highs
Global stock markets once again demonstrated remarkable resilience in a week headlined by rising government borrowing costs, geopolitical tensions and renewed inflation concerns from higher energy prices. US equities were supported by technology shares and optimism around AI-related growth – the blue-chip S&P 500 and technology focussed Nasdaq indices gained 1.15% and 0.64% respectively, just shy of all-time highs reached earlier in the week.
Highlights within the tech sector included SpaceX’s 8% gain to $171 per share on Monday, boosted by Morgan Stanley reiterating its overweight rating and $300 price target. Analysts at the investment bank argue that the market is undervaluing the company's growth potential, particularly in artificial intelligence (AI) computing, when compared with other large technology companies.
They expect the upcoming Starship Flight 15 in late October or early November to be the biggest positive since its IPO in June as a successful teat will demonstrate progress towards catching and reusing the spacecraft, strengthening the case for dramatically lower launch costs and greater launch capacity.
Analyst Adam Jones added SpaceX's AI and computing operations could become a significant source of earnings, alongside its established launch and Starlink businesses. Starlink gives SpaceX an existing connectivity business, while its launch operations provide capabilities that competitors would find difficult and expensive to replicate.
The gains in SpaceX, alongside a bounce in Tesla shares following a report that it had delivered 486,532 vehicles in the three months to the end of September, its best quarter since President Trump ended a $7,500 tax credit for EV purchase last year, pushed Elon Musk’s estimated wealth through $1 trillion.
However, was some volatility within the tech sector later in the week, triggered by a Financial Times report indicating that OpenAI’s annualised revenue of approached $50 billion to the end of September was $20 billion lower than had previously been reported.
The discrepancy arose from attempts by OpenAI’s investors to produce a direct comparison with Anthropic’s annualised revenues. The pair calculate the figure in different ways, with Anthropic including the revenue from sales via cloud partners such as Amazon’s AWS and Google Cloud, while OpenAI does not.
Away from company news, rising government bond yields remained a key area of concern with French 10-year OATs hitting 4.9%, the highest level since 2002. Whilst France faces similar challenges to other western countries, namely surging government debt, higher inflation and structurally lower economic growth, its political situation and lack of consensus over its 2027 budget have made its debt an easy target for the bond vigilantes. The minority government of Sébastien Lecornu has put forward a 2027 budget with an additional EUR 43 billion in spending cuts and tax rises to bring the deficit down to 5% of GDP, but investors do not think it is enough to put France back onto a path towards fiscal sustainability.
The government expects interest costs to rise to EUR 63 billion this year, and to reach EUR 91 billion in 2027, much more than it spends on education or defence.
Opposition leaders from both sides of the political spectrum have vowed to block the budget in its current form, raising fears of another government collapse ahead of next year’s presidential elections.
In commodity markets, Brent crude rose to $104 a barrel following renewed threats to oil shipping through the Strait of Hormuz and Hurricane Isaias forced a shutdown of more than 70% of US offshore crude production on Friday, equivalent to 1.3 million barrels per day.
Gold (+1.3%) had its best week since mid-August as investors turned to precious metals to hedge risk, rather than using traditional safe-haven government bonds.
Looking ahead, corporate earnings will come back into focus as the third quarter reporting season kicks off in earnest, starting with the major Wall Street investment banks on Tuesday. A day later, the US CPI inflation report for September will also be closely watched for clues over how far and fast the Federal Reserve will need to increase interest rates.
The persistent breach of the EU’s 3% of GDP fiscal deficit rule inhibits the European Central Bank from using tools to support French government bonds.