US markets continue to scale new peaks ahead of Fed decision, big tech results

Benchmark indices on Wall Street hit new records on Tuesday, October 29, as AI-related themes continued to make merry. The new highs come ahead of the US Federal Reserve's interest rate decision and major big tech earnings.

The Dow Jones ended 160 points higher, not before correcting over 200 points from the highs of the day. The index briefly tested the 48,000 mark intraday. The S&P 500 also crossed 6,900 intraday but could not close above that level, ending 0.2% higher. The Nasdaq ended with gains of 0.8% and emerged as the outperformer, led by shares of Nvidia.

Nvidia's market capitalization is now nearing the $5 trillion mark after the stock ended 5% higher on Tuesday courtesy a slew of announcements made by CEO Jensen Huang at the company's annual GTC conference. Huang announced that Nvidia will be buying stake worth $1 billion in Nokia, which sent shares of the telecom company soaring by 22%. Nvidia will also be partnering with the US Department of Energy to build seven new supercomputers. Huang added that the demand for GPUs remains higher and that its Blackwell GPU is now being manufactured in Arizona, from Taiwan earlier.

While Nvidia is nearing the $5 trillion market cap mark, Apple crossed the $4 trillion mark, becoming the third company after Nvidia and Microsoft to join the club. The stock is up nearly 60% from the lows of April, adding $1.4 trillion to its market cap. The recent rally is led by a better-than-expected response to its new iPhone, with Counterpoint Research stating that 14% more iPhone 17s have been sold in the first 10 days of sale, compared to the iPhone 16.

The rally will be put to test today with the US Federal Reserve's interest rate outcome. The Fed is widely expected to cut rates by 25 basis points, but commentary on the road ahead from Fed Chair Jerome Powell will hold the key.

A CNBC survey expects a cut from the Fed during the December and January policies as well. However, a potential AI bubble, persistently high inflation, lack of data due to government shutdown and concerns over the Fed's independence are some of the concerns highlighted by 38 respondents to a CNBC survey. 80% of those 38 respondents, which included economists, strategists, and fund managers, believe that AI-linked stocks are "somewhat" to "very overvalued."

This AI theme will also be tested after market closing hours on Wednesday as three of the Magnificent Seven companies - Microsoft, Alphabet and Meta report their results. A Bloomberg Intelligence note expects the Magnificent Seven companies to report 14% profit growth during the quarter, which is higher than the overall 8% growth for the S&P 500 components, but the lowest level since the first quarter of 2023.