Market Shrugs Off Rates Again as CoreWeave Eases the Capital Crunch

The market stumbled on interest-rate concerns Tuesday but is shrugging them off again Wednesday morning. Chip stocks are up about 4.8%, and Nvidia (NVDA) is leading with a gain of about 5%.

Odds of a quarter-point Fed hike on Dec. 9 are at 87%, with a small chance of a half-point increase. The odds of another hike on Jan. 27 have jumped to 67% from 21% a week ago. The market is no longer pricing a single hike. It is pricing a series of them.

As I wrote Tuesday, the market has handled rate pressure fairly well because of optimism about economic growth and lower oil. The worries that hit stocks Tuesday already seem forgotten.

The Bond Market Is Less Forgiving

The 10-year Treasury yield jumped to 4.99% Tuesday and briefly topped 5%, and an auction of 10-year notes drew the weakest demand since early June. Dallas Fed President Lorie Logan added to the pressure by calling for at least two more rate hikes.

The bond market is closed today for Veterans Day, so stocks get a day off from watching yields, and that may be helping the mood. The bond market reopens Thursday with an auction of 30-year bonds, and the producer price index comes out on Friday.

Each additional hike adds to a slow squeeze on valuations. That is what happened in 1994, when stocks went nowhere even though earnings grew strongly.

CoreWeave Eases the Capital Crunch

Following its earnings report CoreWeave (CRWV) is lifting the data-center group. The company rents out AI computing power and has been the poster child for worries about the AI capital crunch. It reported a strong quarter Tuesday night. Revenue rose 168% to $3.7 billion and beat estimates, and the backlog of contracted business jumped to $132.5 billion from about $104 billion in June. It also raised its guidance for the year.

CoreWeave said it won’t tap the unsecured debt market at current yields and doesn’t need to. It expects to raise less than $5 billion in new capital through 2027 and to collect about $9 billion in customer prepayments over the next three months. That’s a direct answer to the fear that the smaller AI cloud companies are being shut out of the capital markets. The stock is up about 14% premarket.

CoreWeave also spent $14.5 billion on capital projects in the quarter, about four times its revenue. Its interest expense nearly tripled from a year ago to $846 million, which is more than its operating income, and its loss widened. The business is growing fast, but it is still expensive to finance.

Taiwan Semiconductor Manufacturing (TSM) added to the chip rally by reporting that October revenue rose about 60% from a year ago, and markets in Taiwan and South Korea had strong gains overnight.

Anthropic Sets Its Price

Anthropic set the terms of its IPO at $70 to $78 a share. That values the company at up to $1.4 trillion and would raise as much as $64.4 billion. The valuation is below the roughly $1.5 trillion expected and well below the $2 trillion some reports floated earlier.

Seven strategic partners, including Alphabet (GOOGL) and Nvidia, have agreed to buy $26 billion of stock at the IPO price. Nvidia is investing in one of its own customers again, which is the circular financing I’ve written about before.

The stock could begin trading as soon as Nov. 18 or 19, right after Nvidia reports on Nov. 17. Those two events will tell us whether the AI selloff went too far.

Game Plan

I’ve increased my cash position, and I’m actively looking for new buys as charts develop. I’m optimistic about some positive year-end action, but the volatility is making it difficult.

The big swings over the past week may create good technical support if the daily ranges narrow and we see some consolidation. A market that stops lurching and starts to build a base will give me the entry points I want.

At the time of publication, Rev Shark had no positions in any securities mentioned.