Thursday Wrap: AI Rebound This Week Meets Nvidia Shock as Yields Climb

U.S. equities staged a powerful recovery during the week, reclaiming much of the damage from last week's post-midterm selloff.

The Nasdaq-100 led the rebound, followed by the S&P 500, while the Russell 2000 and Dow also advanced. Semiconductor leadership was particularly strong, with the Philadelphia Semiconductor Index rising nearly 12% for the week through Thursday.

The recovery also brought a significant normalization in volatility: short- and medium-term volatility measures fell sharply, and the VIX term structure returned to contango, where the near-term expiration price is lower than longer-dated price. However, VIX spot volatility remains somewhat elevated, suggesting investors are less panicked but still cautious near 18.

IT Sector Rebounds Despite Nvidia Pressure

Sector performance reflected that rebound. Information technology, Communications Services, and Energy were among the strongest groups over the past five trading days. At the other end, materials were lower. The pattern shows investors moving back toward growth and cyclical exposure after last week's broad liquidation, rather than simply hiding in defensive sectors.

The week's biggest corporate shock came from Nvidia (NVDA). Co-founder Jensen Huang Thursday stepped down as CEO and from the board; he admitted to an affair with an alleged Chinese spy. A federal investigation has begun into related Nvidia chip shipments, according to reports. The episode has intensified debate over advanced-chip exports to China and created a new leadership and regulatory overhang for one of the market's most important Al companies.

Artificial Intelligence Earnings

Elsewhere in Al infrastructure, earnings remained strong. CoreWeave (CRWV) reported third-quarter revenue growth of nearly 166% year over year, beating expectations, while its per-share loss was narrower than forecast. Management said it expects profitability, on an adjusted basis, in the first half of 2028 with strong customer commitments. Despite the better-than-expected results, the stock fell 25% Wednesday. 

Applied Materials (AMAT) also delivered an encouraging read on semiconductor capital spending, forecasting first-quarter revenue above Wall Street expectations. Semiconductor Systems revenue jumped sharply from a year earlier, while management said wafer-fabrication equipment demand should remain strong into 2027.

The Economy: Will Inflation Spur Fed Action?

The economic backdrop, however, was less friendly. October CPI rose 0.4% month over month, above the 0.3% consensus, while core CPI increased 0.3%, also hotter than the 0.2% estimate.

Core inflation has now risen 0.3% for three consecutive months, reinforcing the Fed's concern that price pressures remain sticky beyond energy alone. Markets responded by sharply increasing expectations for another Fed hike in December. That repricing pushed the 10-year Treasury yield above 5.1%, to about 30 basis points higher than a week earlier. Inflation risk is part of the explanation, but so is a rising duration premium and extraordinary demand for capital. Government borrowing remains heavy, while Al data centers, semiconductor fabs, power infrastructure and other private investment projects are simultaneously competing for financing. That combination can keep long-term rates elevated even without an immediate change in the fed funds rate. WTI crude, while down 13% month to date, also remains stubbornly close to the psychologically important $90 area despite recent volatility, preserving an additional energy-inflation risk.

Friday's October PPI report showed US producer prices rose 0.3% in October, below the 0.4% forecast, below the 0.4% forecast, while annual PPI reached 6.5%, versus 6.6% expected. The cooler print could provide relief to bonds and growth stocks and help extend the countertrend recovery. With last week's losses largely retraced and volatility normalized, the next move increasingly depends on whether inflation data validate or perhaps challenge the markets renewed appetite for risk.

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