Key facts
- Wall Street stocks rallied on Thursday, with the Nasdaq up 2.8% and the S&P 500 up 1.7%, driven by AI optimism and a surge in Microsoft shares.
- The yen experienced a significant surge against the dollar, falling 2.5%, with analysts suspecting official Japanese intervention.
- The US 30-year Treasury yield rose to its highest level since the mid-2000s, indicating market skepticism about the Federal Reserve's inflation-fighting commitment.
- The tech sector, particularly chip stocks, saw substantial gains, while communication services lagged.
- An AI-focused hedge fund, Situational Awareness, sold most of its portfolio to Citadel amid a challenging month for global hedge funds.
Wall Street experienced a strong rally on Thursday, fueled by renewed optimism surrounding artificial intelligence and a significant surge in Microsoft shares. Investors appeared to disregard a spike in bond yields that followed comments from Fed Chairman Kevin Warsh regarding inflation.
In the foreign exchange market, the yen recorded one of its best days in years, with analysts widely suspecting official intervention from Japanese authorities to support the currency. The dollar index also declined.
The author's column highlights skepticism in the bond market regarding Warsh's commitment to reducing inflation and the Federal Reserve's 2% inflation target. The strategy of allowing the bond market to perform tightening actions for the Fed is described as risky, potentially leading to further market turbulence.
Key market movements included a 2.8% rise in the Nasdaq and a 1.7% gain in the S&P 500. The tech sector, particularly semiconductors, saw substantial gains, while communication services lagged. Microsoft shares jumped 15.5%, SanDisk rose 26%, and Micron Technology gained 18%. Meta shares fell 8%, while Amazon and Apple saw mixed results after hours.
The US yield curve steepened, with the 30-year Treasury yield reaching its highest level since the mid-2000s. Oil prices fell in choppy trading, while gold and palladium prices increased.
Regarding communication, Warsh's remarks were criticized for a lack of clarity on how inflation would be brought down, leading to doubt and skepticism in the bond market. The intervention in the yen market followed weeks of speculation, with analysts certain of official involvement despite no confirmation from Tokyo. The effectiveness of this intervention is questioned, with the Bank of Japan's upcoming decision seen as crucial.
In terms of liquidation, the AI-focused hedge fund Situational Awareness, led by Leopold Aschenbrenner, sold the bulk of its stock portfolio to Ken Griffin's Citadel. This move comes as global hedge funds face their largest monthly drawdown on record due to a souring AI trade.