Futures are higher but there continues to be tangible angst below the surface as traders are aggressively shorting potential AI losers, while US stocks continue to fall behind the rest of the world. “It’s a paradox in that markets are holding, breaking records, yet investors remain cautious,” says Vontobel’s head of equities Jean-Louis Nakamura. As of 8:00am ET, S&P and Nasdaq futures are up 0.3%, with premarket strength in Mag7, Semis and Cyclicals while Energy and Materials underperform. It’s unclear right now which stocks will be hurt by AI, but it’s clear that traders are nervous. “The slightest miss on earnings is brutally penalized and substantial beats are required to boost share prices,” said Nakamura. Bond yield stabilize, flat to down 1bp across the curve with USD also flat. Commodities are mostly lower with Energy and Metals weaker (WTI, Precious down less than 1%) and Ags higher. Today’s macro data focus is on jobless claims and existing home sales. With the stabilization in the bond market and net positive WTD macro data, we may investors push the market higher into tmrw’s CPI where only a materially hawkish print is likely to shift the market narrative.

In premarket trading, Mag 7 stocks are mostly higher (Alphabet +0.5%, Amazon +0.3%, Apple -0.2%, Nvidia +1.2%, Meta Platforms +0.4%, Microsoft +0.4%, Tesla +0.5%),

With US stocks lagging gains in Asia and Latin America this year, the moves underscore how sensitive the market has become to companies’ exposure to the infrastructure behind the AI boom. Memory-chip shortages and pricing are coming up frequently as topics in company earnings reports and conference calls.

“This is a year of the bullish stock market, but a very volatile stock market — and the volatility will be induced by the AI trade, which is evolving,” said Beata Manthey, head of European Equity Strategy at Citigroup Inc. “Right now we are concentrating on losers. But we also need to discover who the new winners are going to be.”

The AI winners and losers trade is playing out across the world, helping Asian markets — with a heavy concentration of AI hardware firms — extend their lead over the US. That’s left the S&P 500 ranking 69th among the 92 stock indexes tracked by Bloomberg, according to Markets Live. Among sectors,jitters over software have given the ‘old economy’ stocks in the Dow Jones Transportation Average a new lease of life.

And in single stocks, the huge memory-chip needs of AI are rippling out. Japanese chipmaker Kioxia surged after its guidance beat estimates, whileCisco shares are lower in premarket trading after saying that mounting memory chip prices are hurting its margins.Elsewhere in the AI space, Anthropic is said to be nearing the completion of a deal to raise more than $20 billion in a funding round with a plethora of big investors. And Softbank announced a near-$20 billion investment gain on OpenAI.

Since Jan. 9, there has been a larger swing for the average S&P 500 stock compared to 99% of the time over the past three decades. The 10.8% move, averaged on an absolute basis in that time, has created a windfall for investors with long dispersion positions, according to data from Nomura. US stocks appear less vulnerable than in recent weeks after hedge funds reduced positioning in January, according to JPMorgan strategists.

Traders are also keeping a close eye on key US economic data. Jobs numbers on Wednesday came in surprisingly strong, and attention now turns to Friday’s inflation report for clues on future policy moves by the Federal Reserve.

In politics, Trump’s tariff policies suffered their strongest political blow yet with the Republican-led US House passing legislation aimed at ending the president’s levies on Canadian imports. The US and Japan are closing in on the first three projects to be funded by Tokyo’s $550 billion investment vehicle, as part of their bilateral trade deal.

Out of the 346 S&P 500 companies that have reported so far in the earnings season, 77% have managed to beat analyst forecasts, while 19% have missed. CBRE, Exelon and Iron Mountain are among companies due to report results before the market open. CBRE earnings come in the face of a real estate services ‘AI scare trade’ which hit the sector on Wednesday. Earnings from Applied Materials, Coinbase and Airbnb follow later.

Source: ZeroHedge News