US stock indices paused last week, even posting their worst session since October on Thursday. Artificial intelligence (AI), previously the market's main driver, dragged the indices down this time. Investors are becoming more cautious as the amounts of debt announced (both in the bond market and through private financing) to support investments skyrocket.
Markets are nevertheless beginning to clearly distinguish between cash-generating companies (like Alphabet or Amazon) and those that, on the contrary, consume massive amounts of cash (like Oracle or CoreWeave), the latter being heavily penalized. A symbol of this distrust, Oracle's CDS, for example, has tripled since its summer lows.
Another sector where pressure is mounting, indirectly linked to AI, is energy. The exponential growth of data centers is now pushing electricity demand to unprecedented levels. While they currently account for about 4% of total electricity consumption in the United States, this share could exceed 10% by 2028, according to the Department of Energy. Electricity producers, as well as tech giants, are thus engaged in a veritable race to increase capacity, at the very moment when some states are already nearing saturation. In several regions, authorities are even beginning to introduce forms of rationing or limit new connections in order to preserve grid stability. As a logical consequence of this surge in demand, several regulators, such as the EAI (Energy Information Administration) and the FERC (Federal Energy Regulatory Commission), anticipate continued increases in electricity prices. The EAI projects an increase of approximately 23% in wholesale prices in 2025 compared to 2024, followed by another increase of approximately 8.5% in 2026, according to its latest forecasts.
This context obviously doesn't favor a rapid easing of inflation… especially since it's already well above the central bank's target. Since Jerome Powell's last speech, investors are increasingly doubtful about another interest rate cut in December, whereas it seemed almost a certainty just a few weeks ago. With the government shutdown having significantly reduced visibility on the true state of the US economy, several FOMC members have taken care to align themselves with the Fed chairman's cautious stance, further increasing uncertainty surrounding the next meeting. The gradual reopening of public services should allow for a return of economic data releases, but these will remain incomplete. Kevin Hassett, the White House economic advisor, indicated, for example, that the October jobs report would be partial and would not include the unemployment rate, further limiting the market's ability to assess the true dynamics of the economy.
The Fed isn't the only one worried about inflation. With Republicans having lost several elections in recent weeks and the midterm elections approaching, the issue of consumer inflation is intensifying political pressure and is therefore being closely watched. To ease the pressure on food prices, Donald Trump announced a reduction in tariffs on several products (bananas, coffee, beef, etc.) that are difficult to produce locally in the United States. He is thus revisiting, once again, his reciprocal tariffs while agreements, such as the one with Switzerland, continue to be negotiated.
The coming days will be marked by the return, albeit incomplete, of economic statistics delayed by the government shutdown. But it is above all NVIDIA, with its highly anticipated quarterly results, that is expected to set the tone. In a market that has become hypersensitive to the topic of AI, the slightest surprise will act as a catalyst.
