Tech, politics and geopolitics

What a week it has been, right! There was no time to get bored despite the lack of US economic data — the tech sector kept us busy with a string of mega deals. Nvidia and AMD kicked things off with a major AI-related partnership that sent AMD — and other tech names — sharply higher on Monday. Just hours later, Elon Musk’s xAI announced a $20 billion funding round backed by investors including Nvidia. Then came news that SoftBank is buying ABB’s robotics division, sending ABB shares to record highs. The group also confirmed this morning it’s in talks for a $5 billion margin loan backed by Arm to help fund investments in OpenAI. Meanwhile, Dell doubled its sales and profit forecasts, admitting it had got its AI demand projections ‘wrong’ last year — demand is much stronger than expected. Add in renewed appetite from Jamie Dimon for the AI story, and it’s clear the enthusiasm is still building.

The AI bubble debate remains a hot topic: some argue this is the new internet bubble 2.0 waiting to burst, others think it’s a bubble that still has room to inflate, and many point out that as long as earnings growth holds, the market can keep going. The upcoming earnings season will be the real test. Tech firms in the S&P 500 are expected to post around 21 % earnings growth, with Nvidia forecast to generate roughly $54 billion in quarterly revenue — excluding China.

Valuations remain elevated but not extreme: the Bloomberg Magnificent 7 trade at about 39 times earnings, high but not outrageous given the profit momentum. So the ball is in the earnings camp — and early signs are encouraging. Nvidia’s key partners are already showing strength: Hon Hai (Foxconn) reported an 11 % increase in quarterly sales, and TSMC posted a 30 % jump in Q3 revenue.

Speaking of earnings, yesterday’s first batch leaned on the optimistic side: PepsiCo and Delta both beat expectations with solid results and upbeat outlooks, while Levi’s beat on revenue and profit but offered softer full-year guidance. Overall, no red flags yet on the corporate front.

On the economic data side, the US government shutdown means we’re flying half-blind, but the New York Federal Reserve’s (Fed) inflation expectations survey wasn’t exactly soothing for doves: both the one-year and five-year expectations ticked to and above 3%. Earlier this week, the FOMC minutes hinted at more rate cuts ahead, though policymakers are clearly balancing that with ongoing inflation risks. Markets still price in roughly a 95 % chance of another rate cut by the end of this month — good news for risk assets, though the lack of official data means expectations could shift abruptly once the government reopens and fresh figures arrive. That risk should keep the 2-year Treasury yield and the US dollar supported.

Speaking of which, the dollar index climbed to its highest since August, not because of US strength but because of weakness in the euro and yen. France’s political impasse helped drag the EURUSD below 1.16, compounded by a surprise drop in German exports. Meanwhile, the yen weakened again as markets bet that incoming PM Sanae Takaichi will favour looser fiscal and monetary policies — though many (myself included) think that’s far from certain given Japan’s rising inflation and high debt levels, and the Bank of Japan’s (BoJ) ongoing normalization. Still, the USDJPY is testing the 153 handle, with a potential move toward 155–160 not off the table.

As mentioned after the last FOMC meeting, the US dollar faces a hawkish readjustment. The two main risks to that view are the US government shutdown, which clouds visibility, and trade tensions — China reportedly halted soybean purchases from the US and curbed rare-earth exports ahead of the next bilateral trade summit. The latter helped keep VanEck’s Rare Earth & Strategic Metals ETF well bid, with Trilogy Metals surging over 200 % on Tuesday amid political tailwinds for US miners.

On the geopolitical side, a ceasefire in Gaza kept U.S. crude below $62 per barrel, while gold eased back under $4,000 per ounce and silver slipped below $50 after briefly topping $51 yesterday. The dollar rebound and easing Middle East tensions may encourage some near-term profit-taking in gold, but the medium-term outlook remains positive — supported by central-bank buying, lingering inflation concerns and waning faith in traditional currencies.

One last thought before we go: for those worried that the S&P 500 looks expensive, it hasn’t been as impressive in gold terms. The index has lost about 70 % of its value relative to gold since 2000. In fact, buying and holding gold over the past 20 years would have outperformed the S&P 500. That said, gold has also seen deep pullbacks — and another one could be forming. Would that derail enthusiasm? To be seen. Many fund managers still argue that keeping 10–15 % of a portfolio in gold remains a wise hedge.