Nasdaq 100 swings as strong tech earnings meet rising rate fears

The Nasdaq 100 (USTEC) is being pulled in two directions. Higher energy prices, linked to the situation in the Middle East, are keeping US inflation high and raising expectations that the   Fed will raise interest rates again. At the same time, strong results from SpaceX and Super Micro Computer have renewed interest in technology companies linked to artificial intelligence (AI).

Higher borrowing costs are hitting the housing market

US CPI was 3.7% higher in September than a year earlier, up from 3.4% in August, with energy a major driver. The Fed raised rates in September for the first time in three years to 3.75-4.00%. Markets are now debating whether the next increase comes at the 27-28 October meeting or in December.

The housing market shows how higher borrowing costs are affecting the economy. Pending home sales, which count contracts signed to buy existing homes, fell 7.3% in September, compared with an expected drop of 0.7%. That took the index to its lowest level since records began in 2001. Builders are also pulling back. Single-family housing starts fell 4.6%, and permits for future single-family homes dropped 4.0% to their lowest level since March 2023.

This matters for technology shares because much of their value is based on profits expected years from now. When interest rates rise, those future profits are worth less today, which can weigh on share prices even when companies are performing well.

AI growth shows no sign of slowing

The Nasdaq 100 ended Tuesday roughly flat, then rose about 1% in futures trading after US markets closed. SpaceX (SPCX) reported third-quarter revenue of $14.6 billion, up 161% from a year earlier, along with its first profit since listing in June. Because SpaceX now makes up close to 3% of the Nasdaq 100, a large move in its shares can shift the index on its own.

Super Micro Computer, which builds servers for AI data centers, said it expects quarterly revenue of $18.5 billion to $19.5 billion, well above its earlier guidance of $14.5 billion to $15.5 billion. It also expects higher gross margins, meaning it keeps more of each dollar of sales, citing strong demand for AI platforms. These figures are preliminary, and full results are due on 3 November.

These results show that companies are still spending heavily on the equipment that powers AI. But they do not change the fact that inflation is still high, or that the Fed may raise rates further. One can support share prices while the other limits how far they rise.

Strong numbers from SpaceX and Super Micro suggest AI demand remains strong, which has supported tech shares. But investors are also watching inflation. Higher energy prices are keeping pressure on the Fed, and the weaker housing data suggests that higher borrowing costs are already affecting the economy. Upcoming earnings will test whether AI growth can keep its pace, while any shift in rate expectations could weigh on how much investors are willing to pay for US shares,”.

All eyes will now be on the Fed’s 28 October decision and the next round of tech earnings. The rate decision will show how far the Fed is willing to go to bring inflation down, while the earnings will show whether AI demand is strong enough to keep supporting tech valuations.