Morning Markets: AI, quantum, and Fed shift shape the open

Introduction#

U.S. equities head into Friday’s open with a cautiously constructive tone after a bifurcated Thursday session and a busy overnight news cycle that touched every major macro lever—policy, geopolitics, and the next leg of AI infrastructure. According to Monexa AI, the S&P 500 (^SPX) finished at 7,445.72 (+0.17%), the Dow Jones Industrial Average (^DJI) at 50,285.66 (+0.55%), and the Nasdaq Composite (^IXIC) at 26,293.10 (+0.09%). The NYSE Composite (^NYA) added 0.42% to 23,118.17, while volatility was mixed: the Russell 2000 volatility gauge (^RVX) eased to 24.14 (-1.03%) and the VIX (^VIX) ticked up to 17.00 (+1.43%) but remains below its 50-day average, signaling contained headline risk for now.

Overnight, policy took center stage as Kevin Warsh is set to be sworn in as Federal Reserve chair today, with several outlets flagging the risk that the next policy move could be a hike rather than the cut markets had hoped for earlier this year. Reuters and recent Fed minutes coverage here underscore lingering inflation concerns and a higher-for-longer rates backdrop. On the innovation front, the U.S. Commerce Department signaled approximately $2.0 billion in quantum-computing incentives, including an estimated $1 billion to IBM to build "Anderon," the first U.S. purpose-built quantum foundry—headlines that helped extend a sharp rally in IBM shares into the evening. Official details are available via IBM’s newsroom and the NIST announcement, with additional confirmation from Reuters.

At the same time, the market is recalibrating AI exposure beyond pure semiconductors toward the power-and-cooling stack. Bloomberg recently highlighted that data-center cooling demand is likely to outlast any short-lived AI hype, citing consolidation and investment waves across suppliers (Bloomberg. That theme was visible in Thursday’s tape—utilities rallied, select data-center REITs advanced, and power/thermal infrastructure names were bought even as some mega-cap chips hesitated post-earnings. Layer on a late-cycle signal from Berkshire Hathaway’s record $397 billion cash stockpile—reported in Monexa AI’s overnight roundup—and the market dynamic before the bell is a blend of resilient growth, defensive quality, and a rotation into AI’s less-crowded infrastructure beneficiaries.

Market Overview#

Yesterday’s Close Recap#

Investors ended Thursday sorting through a heavy mix of idiosyncratic winners and losers. According to Monexa AI, the S&P 500 sits less than 1% below its 52-week high, while the Dow secured a fresh record closing tone earlier this week and pushed higher again Thursday. Utilities, technology, and real estate paced gains; energy and consumer defensives lagged on retailer-specific shocks and refinery weakness. Volatility remains well-behaved relative to recent averages, with small-cap vol (^RVX) easing and the VIX still below its 50-day trend despite a modest uptick.

According to Monexa AI’s heatmap, technology breadth was better under the surface even as mega-cap prints were mixed—NVDA (-1.77%) slipped after blockbuster results, MSFT (-0.47%) was modestly lower, but mid-cap suppliers such as LITE (+11.11%), SNDK (+10.75%), and memory leader MU (+4.11%) rallied. Retail was the other locus of volatility: WMT fell (-7.27%) while TGT gained (+3.16%) and high-end discretionary names like RL (+13.84%) and WSM (+6.49%) surged, suggesting company-specific dynamics rather than broad consumer weakness. Energy sold off, particularly refiners—VLO (-5.00%) and MPC (-3.85%)—even as integrateds like CVX (-0.17%) were more resilient.

Overnight Developments#

Overnight macro headlines were dominated by the Fed transition. Markets will parse Kevin Warsh’s first-day tone for clues on policy reaction functions to sticky inflation; Reuters has flagged the risk that the central bank’s next move could be a hike if progress stalls. Meanwhile, futures received a modest tailwind as Treasury yields edged lower into the European morning with investors rotating back into mega-cap tech and semis, per pre-market chatter captured in media rundowns. In Europe, stocks were set to close the week higher following the Dow’s recent record close, and German consumer sentiment ticked up from depressed levels, according to Monexa AI’s overnight brief. European natural-gas prices slipped back below €50/MWh but remained on track for a weekly gain near 2%, hinting at persistent if contained supply tightness.

On the corporate front, IBM’s quantum news carried into the morning, with the Commerce Department and NIST laying out letters of intent totaling about $2.0 billion across nine firms, including IBM’s Anderon foundry in Albany, New York (IBM; NIST. Separately, the AI buildout narrative continued to shift toward thermal and power infrastructure. Bloomberg’s reporting that cooling demand could outlast any AI equity bubble adds context to Thursday’s leadership from utilities and data-center proxies (Bloomberg. Geopolitically, the Middle East conflict remains a market overhang, and the U.S. is stepping up promotion of its AI ecosystem in Asia following leadership-level diplomatic engagements, according to Monexa AI’s international wrap.

Macro Analysis#

Economic Indicators to Watch#

Today’s focal point is the Fed—specifically, Chair Warsh’s initial remarks and any signals on the reaction function to stubborn inflation. Recent Fed communications reflect unease that disinflation progress has slowed, and markets have been gradually marking to a higher-for-longer rate regime. Reuters coverage of May minutes highlighted ongoing debate about the balance of risks and the possibility that policy may need to remain restrictive, or even tighten, if inflation proves sticky. For the opening tone, that translates into a tighter linkage between rate moves, equity duration, and sector leadership—names with long cash-flow duration or high leverage may remain sensitive to small changes in rate expectations.

With few top-tier U.S. releases on the docket ahead of the long weekend, investors will likely focus on real-time gauges—Treasury yields, breakeven inflation, and credit spreads—for confirmation that yesterday’s “risk-on lite” can extend. Company calendars matter today as well: Monexa AI flags earnings from BJ and select small/mid-cap names, which can ripple into read-throughs for consumers and retail margins. In housing, a newly passed U.S. affordability bill that eases certain developer restrictions could buoy homebuilder sentiment; watch DHI and peers for commentary on permitting, community count growth, and pricing elasticity as rates oscillate.

Global/Geopolitical Factors#

Europe’s equity markets leaned constructive into Friday as yields cooled and tech leadership stabilized, with Germany’s consumer sentiment bouncing off lows. Energy’s crosscurrents persist: European gas futures settled back under €50/MWh but remain up nearly 2% on the week, a reminder that supply-and-demand frictions are not yet fully resolved. In Asia, currencies consolidated but were weighed by the prospect of higher U.S. yields, per Monexa AI’s regional brief. Meanwhile, the U.S. is actively promoting its AI stack across Asia following high-level meetings, signaling ongoing competition for standards and supply chains across semiconductors, cloud, and emerging compute.

For risk management, the geopolitical backdrop is not benign. The Middle East remains a live tail risk, and a public-health headline—the UN mobilization to address an Ebola outbreak in the DRC—adds a small but non-zero exogenous risk factor that investors should monitor for any supply-chain or mobility implications should conditions worsen, according to the UN update captured in Monexa AI’s overnight summaries.

Sector Analysis#

Sector Performance Table#

According to Monexa AI, Thursday’s close featured a defensive tilt with a clear AI-infrastructure undercurrent. Utilities led, followed by technology and real estate; energy and consumer defensive trailed.

The leadership composition is notable. Utilities’ strength was broad-based: NEE (+1.61%), VST (+3.53%), CEG (+1.62%), and D (+0.83%) anchored the bid as investors favored regulated cash flows and power exposure tied to data-center demand. Technology gains masked concentration risk at the top—NVDA fell (-1.77%) despite another stellar quarter—and instead leaned on mid-cap hardware, optics, and memory winners including LITE (+11.11%), SNDK (+10.75%), and MU (+4.11%). Real estate strength was selective, with data-center REITs DLR (+1.90%) and EQIX (+1.25%) advancing, consistent with the market’s pivot toward AI’s physical plant.

Energy lagged with refiners under pressure—VLO (-5.00%) and MPC (-3.85%)—likely reflecting a mix of margin concerns and rotation away from cyclicals. Integrateds were relatively stable, with CVX (-0.17%) and XOM (-0.63%) cushioning the fall. Consumer defensive’s underperformance was dominated by WMT (-7.27%) against stronger moves in TGT (+3.16%) and continued resilience in beverages—PEP (-0.29%) and KO (-0.47%)—underscoring that Thursday’s retail tape was more about idiosyncratic positioning and guidance than a wholesale demand break.

Financials posted small gains as higher-quality franchises firmed—JPM (+0.34%), MS (+1.37%), BLK (+1.16%), and MET (+2.17%). Communication services rose modestly with META (+0.38%), NFLX (+1.37%), and T (+1.64%) offsetting small drags from GOOG (-0.37%) and GOOGL (-0.32%). Industrials were mixed, with weakness in heavy equipment—DE (-5.19%), CMI (-4.64%)—countered by strength in diversified quality—HON (+2.95%).

Company-Specific Insights#

Earnings and Key Movers#

AI leadership is evolving. Despite an earnings “double beat,” NVDA closed down (-1.77%) as investors rotated beneath the surface toward suppliers and adjacent infrastructure plays—consistent with a market that increasingly discounts AI demand across the stack, not just at the chip level. Notably, Nvidia also emphasized diversification toward enterprise and edge compute in recent announcements, broadening the addressable market beyond hyperscalers, as detailed in company press communications.

IBM’s renaissance narrative gathered momentum. IBM surged (+12.43%) on news that it will partner with the U.S. Commerce Department to establish Anderon, a purpose-built quantum foundry funded in part by CHIPS Act incentives. The IBM newsroom and NIST releases outline approximately $2.0 billion in letters of intent to nine companies, with IBM slated to receive roughly $1.0 billion. Pure-play quantum names also rallied in sympathy; QBTS added (+33.26%), a reminder that policy catalysts can create high-beta trading tapes across pre-profit tech subsectors.

In consumer and media, SPOT jumped (+13.06%) after Jefferies lifted its target to $600 and management reiterated mid-teens revenue growth ambitions and a long-range gross-margin framework of 35%–40%, supported by AI partnerships. The debate now turns to subscriber growth durability, pricing power, and the cadence of margin expansion—factors that will likely dictate whether momentum builds or stalls as the year progresses.

Semiconductors and hardware displayed striking dispersion. Alongside Nvidia’s dip, ARM rallied (+16.16%) on strong licensing momentum and ecosystem tailwinds—even as legal headlines remain a watch item—while optical and memory suppliers outperformed (LITE +11.11%, SNDK +10.75%, MU +4.11%). The message is that AI demand is broadening to components that enable bandwidth, latency, and memory intensity, particularly as model sizes and context windows expand.

Retail volatility dominated defensives. WMT slid (-7.27%), COST fell (-2.19%), but TGT climbed (+3.16%) and premium discretionary names ripped—RL (+13.84%), WSM (+6.49%). The pattern points to company-specific execution and mix effects rather than a monolithic consumer downshift. That interpretation is consistent with the broader tape: the consumer cyclical sector rose (+0.70%) into the close even as select staples wobbled.

Energy weakness centered on downstream. Refiners underperformed (VLO -5.00%, MPC -3.85%) versus integrateds (CVX -0.17%, XOM -0.63%), suggesting that the market is handicapping near-term margin compression and/or a tactical de-risking ahead of the holiday demand window. Renewables decoupled: FSLR gained (+4.63%), underscoring how policy, IRA incentives, and AI-driven power needs can create idiosyncratic winners even in a weak sector tape.

In software, the day’s biggest outlier was INTU, which dropped (-20.02%) following earnings, reigniting the debate about AI’s impact on legacy SaaS pricing, product attach, and customer-acquisition funnels. Healthcare was steadier, led by MRK (+2.54%) and LLY (+2.26%), even as devices and services saw isolated weakness (ISRG -2.06%, VEEV -4.06%). In industrials, the divergence between capital goods and high-quality diversifieds persisted—DE (-5.19%), CMI (-4.64%) versus HON (+2.95%).

Extended Analysis#

The open today will test whether a quiet re-rotation toward AI’s physical infrastructure can keep carrying the torch as mega-cap semis consolidate. Three intertwined themes deserve attention before the bell: the power-and-thermal buildout, public investment in frontier compute, and late-cycle portfolio construction.

First, the power-and-thermal thesis. AI data centers are colliding with the limits of air cooling as compute density and heat flux climb. Liquid cooling—direct-to-chip, rear-door heat exchangers, and immersion—has moved from niche to necessity in next-gen racks. Bloomberg reports that cooling demand may outlast any temporary air-pocket in AI equity sentiment as hyperscaler and enterprise deployments scale (Bloomberg. That helps explain Thursday’s bid in utilities (NEE, VST, CEG, data-center REITs (DLR, EQIX, and thermal/power OEMs such as VRT (+2.45%). The investment implication is straightforward: in an environment where index heavyweights dominate headlines, incremental alpha may come from owning the enablers—grid capacity, transmission, backup generation, and high-efficiency cooling—whose earnings trajectories are tied to multi-year capex cycles rather than quarterly AI-unit shipments.

Second, the quantum catalyst. The U.S. government’s letters of intent to allocate roughly $2.0 billion across nine quantum firms marks a step-change in how frontier compute is industrialized. IBM’s Anderon foundry aims to supply a domestic pipeline for quantum hardware manufacturing, with potential spillovers across software toolchains and commercial applications. The official outlines from IBM, NIST, and corroborating Reuters coverage suggest a multi-year capex and talent ramp that could sustain interest in incumbents like IBM and high-beta names such as QBTS. This is early-stage, and execution risks remain high, but the policy signal is unequivocal: strategic compute will enjoy patient capital.

Third, late-cycle positioning. Berkshire Hathaway’s reported $397 billion cash pile, highlighted in Monexa AI’s news wrap, is a classic late-cycle tell—dry powder for volatility and a high hurdle for new investments at current valuations. Equity multiples near highs, rising long rates, and a still-firm labor market collectively argue for balanced risk budgets. Practically, that means emphasizing balance-sheet quality, durable free cash flow, and valuation discipline while maintaining exposure to secular growth vectors like AI infrastructure. Utilities and select quality industrials fit the first bill; data-center REITs and thermal/power OEMs capture the second. Meanwhile, cyclicals tied to consumer wallets and refinery margins may remain tactical, not structural, longs until pricing and volume visibility improves.

One final crosscurrent to watch is the advertising-and-cloud complex. Communication services gained modestly, but leadership remains narrow. META was fractionally higher (+0.38%), and GOOG/GOOGL fractionally lower, while MSFT (-0.47%) continues to manage investor expectations around AI opex and monetization ramps. For now, the market appears comfortable underwriting AI opex against long-run revenue stacks, but in a higher-rate regime, patience will correlate tightly with evidence of faster payback periods and rising ARPU across AI-enhanced suites.

Conclusion#

Morning Recap and Outlook#

The market is trying to reconcile two truths before the open. First, AI is broadening beyond chips into the tangible buildout of power and cooling, lifting utilities, data-center real estate, and select OEMs that stand to harvest multi-year capex. Second, policy risk is rising, with a new Fed chair inheriting sticky inflation and a market that has already priced out aggressive rate cuts. Thursday’s session captured the rotation: mega-cap chips paused, mid-cap enablers ran, refiners slumped, and retailers traded on execution rather than macro.

According to Monexa AI, the S&P 500 closed at 7,445.72 (+0.17%), less than 1% below its record high; the Dow finished at 50,285.66 (+0.55%); and the Nasdaq at 26,293.10 (+0.09%). Volatility remains controlled with the VIX at 17.00 (+1.43%) and the Russell small-cap vol gauge (^RVX) lower at 24.14 (-1.03%). Sector leadership favored utilities (+1.64%), technology (+1.42%), and real estate (+1.25%), while energy (-0.87%) and consumer defensive (-1.31%) lagged. Company narratives remain decisive: INTU (-20.02%) on earnings friction, IBM (+12.43%) on quantum policy catalysts, SPOT (+13.06%) on a re-rated margin arc, and RL (+13.84%) on discretionary strength.

Into the open, watch three catalysts. First, Chair Warsh’s remarks for any hawkish inflection that could nudge front-end yields higher and pressure long-duration equities—Reuters has already framed the risk. Second, follow-through in AI infrastructure—do utilities, data-center REITs, and thermal/power OEMs extend their leadership, validating the cooling-and-power thesis highlighted by Bloomberg? Third, retail dispersion—does the WMT/TGT divergence persist, and what do BJ earnings say about traffic, fuel arbitrage, and margin management?

Key takeaways for positioning are clear. Liquidity and quality matter in a late-cycle tape; so does owning the critical infrastructure underpinning AI rather than chasing every incremental chip headline. Investors should stay nimble around policy communication risk, keep an eye on refiners for signs of margin stabilization, and continue to separate idiosyncratic retail stories from the broader consumer trend. The morning setup favors measured risk-on with a defensive spine.