Weekly Market Overview

The fourth quarter began just as the third had ended: with new highs in the stock markets, significant volatility beneath the surface, and continued pressure on the bond markets.

The most significant developments in the bond markets this time took place in Europe, specifically among our southern neighbors. France is now borrowing at higher rates than Italy and Greece—a reversal that long seemed unthinkable. The French 10-year yield is trading around 4.92%, near its highest level in 24 years, and the spread with Germany widened to about 146 basis points after the sharpest weekly rise in 17 years. Prime Minister Lecornu must steer a 54 billion euro austerity package through a fragmented parliament, with debt at 119% of GDP. All this while students are taking to the streets and extremist parties are gaining ground in the polls ahead of the upcoming elections. It reminds me of Charles de Gaulle’s remark: “How can you possibly govern a country that has 246 kinds of cheese?”

The U.S. 10-year yield closed around 5.28%, the 30-year yield at its highest level since 2002, and the term premium—the compensation for the risk of lending for the long term—reached 96 basis points, the highest in twelve years. Significantly, when last week’s jobs report came in well below expectations—with 29,000 new jobs compared to the expected 85,000—long-term interest rates rose. This is no longer about the Fed’s interest rate path.

AI continues to dominate the stock markets, both because of the opportunities the technology offers and because of the pressure it exerts on existing revenue models. Anyone standing between the customer and their decision will be revalued as soon as an assistant can take that place. This time, banks and insurers came under scrutiny. Investors argue that agents, on the one hand, and “tokenization,” on the other, could well put pressure on transaction costs and commissions in this sector, which lost more than 5% in just a few days. Another new development is that with the latest models from Anthropic and OpenAI, it’s becoming increasingly possible to replicate more and more software—from gaming to graphic design—almost exactly, raising the question of whether everything is now “open source.”

On the other hand, costs are rising for both the frontier labs and the hyperscalers. Broadcom is seeking more than $50 billion in private financing—from Apollo and Blackstone, among others—so that OpenAI can purchase the chips they are developing together. Oracle is negotiating a separate vehicle, financed by external investors, that would purchase the chips and lease them back out. SpaceX is seeking $40 billion for Nvidia chips. The market demonstrated on Thursday that this is not without risks, when the Financial Times published an article estimating OpenAI’s revenue at $50 billion, compared to the expected $70 billion. The FT turned out to be off the mark (it did not include 20 billion in revenue from partners), but the negative reaction from the AI supply chain illustrates investors’ nervousness.

Gold lost ground again due to rising interest rates. Bitcoin, which had recently regained popularity, corrected due to fears that the latest generation of AI models could crack its encryption. The euro fell to $1.1161, its lowest level in seventeen months and marking a fourth consecutive weekly loss. Investors are seeing the spread between Bunds and French OATs widen and are playing it safe. And so the markets do their thing, while investors are forced to confront their PTSD (Post-Traumatic Stress Disorder) time and again—whether the “trauma” stems from the dot-com crash, the Eurozone crisis, or the stagflation of the 1970s. Starting next week, earnings season will pick up steam, and the focus may shift back to individual stocks.