US Stocks Rise as Rate-Cut Hopes Offset AI Utility Concerns

Global stock markets experienced modest gains on Friday as traders balanced optimistic expectations for interest rate cuts against signs of weakening in certain AI-related utility stocks. The S&P 500 rose by approximately 0.4% during late morning trading in New York, with the NASDAQ 100 increasing around 0.5% and the Dow Jones Industrial Average climbing 0.6%. This movement reflects a continued positive sentiment in the market, despite a minor technical outage at the Chicago Mercantile Exchange (CME) that briefly disrupted trading.

The broader risk appetite remained intact, with global benchmarks also on the rise. The Stoxx Europe 600 gained 0.3% and the MSCI World Index saw an increase of 0.4%. Traders are increasingly pricing in a potential interest rate cut from the Federal Reserve at their upcoming meeting. Market swap rates suggest a nearly full 25 basis points reduction, following recent comments from Federal Reserve officials and weaker labor market signals that support the case for a more accommodative policy stance.

Market Dynamics and Trading Disruptions

The technical outage at the CME’s data center caused a temporary halt in futures and options trading early in the US session. Despite the restoration of most trading activities by mid-morning, trading volumes remained low as many investors observed a partial holiday following the Thanksgiving break. Analysts indicated that the thin liquidity in the market made it challenging to draw definitive conclusions from intraday price fluctuations.

On another front, utility stocks driven by AI demand have shown signs of fatigue. After reaching record highs earlier in the year, the S&P 500 Utilities Index is on track for its worst monthly performance since August. Investors are now evaluating whether power producers can scale their energy generation capabilities as rapidly as previously anticipated. For instance, shares of Constellation Energy have dropped by approximately 11% from their peak in October, following an earnings call that provided limited information regarding new capacity related to data centers. Similarly, Vistra has seen a decline of around 16% since mid-October, as the frequency of AI-related contract announcements has diminished.

Analysts have noted that concerns about an “AI bubble” are increasingly impacting this sector. If the demand for electricity from AI workloads grows at a slower pace than initially projected, utilities that inflated their valuations based on aggressive assumptions may be at risk. Earlier comments from DeepSeek regarding the energy efficiency of AI models spurred a notable sell-off in several power stocks, underscoring the potential for shifts in technology to dampen expected growth in electricity demand.

Despite recent downturns, several utility stocks maintain significant year-to-date gains. Companies like Constellation, NRG, and GE Vernova continue to outperform the broader market, suggesting that the recent price drops may also reflect profit-taking after substantial increases.

Currency and Commodity Movements

In the currency markets, the Bloomberg Dollar Spot Index fell by 0.2%, extending its recent decline. The euro traded around $1.1602, while the British pound held steady at approximately $1.3249. The Japanese yen strengthened by around 0.2%, reaching 156.03 per dollar as traders adjusted their positions concerning US yields.

Bond markets experienced minor shifts, with the yield on the US 10-year Treasury rising by three basis points to 4.02%. Germany’s 10-year yield increased to 2.69%, and the UK 10-year gilt yield remained near 4.45%.

In commodities, West Texas Intermediate crude oil saw a 1.1% increase, reaching approximately $59.27 per barrel as traders monitored developments ahead of the upcoming OPEC+ meeting. Spot gold also advanced by 1.1% to around $4,204 per ounce after futures trading resumed post-CME outage.

In the digital asset market, Bitcoin rose by 0.8% to around $92,172, while Ether increased by 0.9% to trade near $3,058. The crypto markets reflected a tone of cautious optimism, with traders weighing the potential for interest rate cuts against ongoing concerns regarding liquidity and volatility as the year comes to a close.

This summary of current market conditions illustrates the complex interplay of factors affecting investor sentiment and trading behavior across various sectors. As the Federal Reserve’s next moves come into clearer focus, market participants will continue to navigate the dual challenges of evolving technology demands and broader economic signals.