Wall Street ended the day with two competing narratives. On one hand, CoreWeave, a key player in the AI infrastructure space, delivered results that helped calm nerves about whether the artificial intelligence boom is losing steam. On the other, a hotter-than-expected US core inflation reading quickly pushed bond yields higher and put the Federal Reserve's next move firmly back in the spotlight.
The core inflation figure, which strips out volatile food and energy prices, came in above forecasts. That was enough to reignite speculation that the Fed may not be done raising interest rates. Traders are now debating whether the central bank will deliver a 25-basis-point or a 50-basis-point hike at its December meeting.
CoreWeave: A bright spot for AI bulls
CoreWeave, which provides cloud computing power for AI workloads, reported results that beat expectations. The company also raised its forecasts, signaling that demand for its services remains strong. That was a welcome relief for investors who have been worried that the AI trade, which has driven much of the market's gains this year, might be cooling.
The company's raised guidance suggests that businesses are still willing to spend heavily on AI infrastructure, even as some analysts question the sustainability of that spending. However, CoreWeave's massive capital expenditure plans—reportedly around $37 billion—continue to raise concerns about its debt load. The company's revenue beat did not fully erase those worries, but it did provide a short-term boost to sentiment.
For everyday investors, CoreWeave's performance is a useful barometer for the broader AI trade. When a key supplier to the AI ecosystem reports strong demand, it suggests that the technology's adoption is still on track. That can support tech stocks across the board, even those not directly tied to AI.
The Fed steals the show
But the good vibes from CoreWeave were short-lived. The inflation data, released later in the day, quickly shifted the market's focus. A hotter core reading means the Fed's fight against inflation is not yet won, and that raises the odds of another rate hike.
Higher interest rates are generally bad for stocks, especially growth and technology shares, because they increase borrowing costs and make future earnings less valuable. They also push bond yields up, which can lure investors away from equities. That is exactly what happened: yields on US Treasuries rose, and stock markets around the world felt the pressure.
The reaction was not limited to the US. In Asia, for example, the NZX 50 ended flat as investors digested the implications, while the ASX edged higher despite the renewed rate-hike fears. The US dollar strengthened against Asian currencies, and Japan's 10-year bond yield climbed to 2.75% as the global repricing took hold.
What it means for investors
For the average investor, the key takeaway is that the market is still very sensitive to inflation data and Fed policy. Even good news from a major company like CoreWeave can be overshadowed by macroeconomic signals.
The debate over whether the Fed will hike by 25 or 50 basis points in December is not just academic. A larger hike would signal that the Fed is more worried about inflation, and it would likely lead to further increases in borrowing costs for consumers and businesses. That could slow economic growth and weigh on corporate profits.
Investors should also watch how the bond market reacts. Rising yields can make fixed-income investments more attractive relative to stocks, and they can also increase the cost of servicing government debt. The rise in Japan's 10-year yield is a reminder that the repricing is global.
For now, the market is likely to remain volatile as traders parse every piece of economic data for clues about the Fed's next move. The CoreWeave earnings were a positive sign for the AI trade, but the inflation print is a stark reminder that the Fed still holds the keys to market direction.
As always, diversification and a long-term perspective remain prudent strategies. Rather than trying to time the market based on daily headlines, investors should focus on their own financial goals and risk tolerance.
