Trading Day: Easy does it, fresh peaks for Wall St

By Jamie McGeever

ORLANDO, Florida (Reuters) -TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

A surge in U.S. jobless claims to a four-year high on Thursday cemented investors' bets for a Fed rate cut next week, weighing on the dollar and bond yields, and lifting Wall Street's three main indices to new highs. For now at least, expectations of easy monetary policy are clearly trumping growth worries.

More on that below. In my column today I look at how the extraordinary rise in Oracle's share price on Wednesday has reignited the already fiery debate over whether U.S. tech and AI stocks are in a bubble.

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. Americans uneasy at Trump's moves to expand presidentialpower, Reuters/Ipsos poll finds 2. U.S. Fed looks set to resume rate cuts just as its peersare nearly done 3. ECB holds rates unchanged, still 'in a good place' 4. Traders see another ECB cut as increasingly unlikelyafter upbeat Lagarde 5. BOJ signals final phase of Ueda's stimulus unwind -selling ETFs

Today's Key Market Moves

* STOCKS: Record highs for the S&P 500, Nasdaq and Dow.Russell 2000 outperforms, up 1.8% to a new 2025 high. * SHARES/SECTORS: Ten of the 11 S&P 500 sectors rise.Warner Bros shares soar 29% and Paramount shares leap 15.5% onWSJ report Paramount is preparing a majority cash bid. Oracleretreats 6% after Wednesday's surge. * FX: U.S. dollar slips again, euro rises after ECBdecision and steer. Indian rupee falls to fresh record low. * BONDS: U.S. 10-year yield briefly dips below 4% forfirst time since April, 30-year auction is pretty well-received. * COMMODITIES: Oil slides around 2%. Silver rises 1% to a14-year high of $41.76/oz.

Today's Talking Points:

* The claim game

The only debate now around U.S. interest rates, surely, is how fast they will come down. That's the upshot from the shock jump in jobless claims figures, which trumped worries over slower growth and simmering inflation numbers - claims surged the most in a year to the highest level in nearly four years.

Remember, a record downward benchmark annual revision to payrolls growth was announced earlier this week too. The labor market is clearly softening, but enough for a half-percentage point rate cut next week? That's still an outside bet, but the probability traders are attaching to it is creeping up.

* Fed vs the world

The European Central Bank kept rates on hold at 2% on Thursday and bank president Christine Lagarde signaled its rate-cutting cycle is over, saying the bank remains in a "good place" and that risks to the economy have become more balanced.

Traders agree. What's more, other central banks are at or close to the end of their easing cycles too. Rates futures pricing suggests that, of the nine non-U.S. G10 central banks, only Canada's is fully expected to cut rates 50 bps by the end of next year, three are unlikely to cut at all, and one - Japan - will raise rates.

* Dollar doldrums

The Fed's relative dovishness - or playing catch-up with many of its peers, if you prefer - is weighing heavily on the dollar. While the broad dollar index isn't making new lows right now, pockets of weakness continue to pop up.

On Thursday the greenback fell to 2025 lows against the Australian dollar, Mexican peso, Brazilian real and Colombian peso. The last time the dollar was this weak against these last two currencies was June last year.

Oracle surge pours fuel on fiery AI bubble debate

The eye-watering surge in U.S. tech giant Oracle's share price on Wednesday added fuel to a fiery debate: is the U.S. artificial intelligence stock boom a bubble destined to burst?

    This is a question that has dogged Wall Street for months, as AI euphoria has helped the S&P 500 and tech-heavy Nasdaq hit new highs seemingly every day, swatting away the chaos and uncertainty surrounding tariffs, Washington politics and Fed independence.

    But Wednesday felt different. It's not every day that one of the country's biggest tech companies sees its share price skyrocket by as much as 43%. Oracle is not a penny stock, startup or meme stock. A surge of this magnitude should make everyone reassess where markets are, and whether this boom is moving into unsustainable territory.

Below are five charts that suggest what former Federal Reserve Chair Alan Greenspan termed "irrational exuberance" may be engulfing AI and tech.

    1. Oracle's soaring valuation

    Oracle, the cloud computing giant, saw its stock trade at nearly 50x estimated 12-month forward earnings on Wednesday, the highest since the dotcom crash when its forward PE topped 120. Its share price rose as much as 43% on the day, causing it to virtually double since June.

Oracle did say it expects cloud revenue to exceed half a trillion dollars and announced four new multi-billion contracts, so some optimism is warranted. But should the company truly be worth twice as much as it was only three months ago?

    2. The Nvidia juggernaut

    Nvidia's share price has doubled since April, rising an eye-popping 300% in the last two years. The AI chip superpower is now the world's most valuable company with a market cap of $4.3 trillion, larger than every country's listed stock exchange apart from the U.S., China, Japan and India, according to Deutsche Bank.   

    Sure, Nvidia continues to churn out cash, but just two customers made up 39% of its revenue in the last quarter. Is that sustainable?

    3. Record-high concentration

    The combined weighting of the top five companies in the S&P 500 is nearing 30%, higher than the 'Nifty Fifty' in the late 1960s/early 1970s and much higher than tech companies in 2000 before the dotcom bust.

This doesn't automatically mean we're in a bubble, but the market is in unchartered territory and heavily dependent on a handful of companies - all of them in one industry. History suggests this level of concentration rarely ends well.

    4. Lofty valuations

    The S&P 500 tech sector is nearing its most expensive levels since 2002 when the dust from the dotcom bust was still settling. Of course, this can be sustained as long as the cash keeps rolling in.

But the amount of AI-related capex needed to develop the industry – an estimated $6.7 trillion worldwide by 2030, according to McKinsey - means the amount of cash that will need to keep coming in is enormous. When the bar is that high, even sound companies might struggle to meet it.

    5. Stretched positioning

    Bank of America's August fund manager survey showed that the most crowded trade in world markets currently is once again "long Magnificent 7", according to 45% of those polled. A majority, 52%, say they see no AI bubble, suggesting this packed trade could get even more crowded before it unwinds.

Investors have little incentive to go against this trade as long as it remains a winning one. But when a crowded trade reverses it can be sudden, and not everyone gets out the exit door in time. A lot of investors could lose a lot of money.

What could move markets tomorrow?

* Japan industrial production (July) * India inflation (August) * UK trade (July) * UK industrial production (July) * Germany inflation (August, final estimate) * Fitch reviews France's credit rating * U.S. University of Michigan consumer expectations(September, preliminary)

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Jamie McGeever; Editing by Nia Williams)