Following the previous session's decline, Nasdaq futures moved higher on Friday; OpenAI's revenue figures fell short of expectations, which had earlier weighed on the red-hot AI sector.

The Dow Jones Industrial Average rose 0.15%, the S&P 500 gained 0.32%, and the Nasdaq climbed 0.57%.

Among the "Magnificent Seven": Tesla rose 2.04%, Microsoft gained 1.31%, Amazon advanced 1.01%, Alphabet added 0.92%, Nvidia climbed 0.90%, Meta Platforms edged up 0.50%, while Apple fell 2.18%.

The Technology Select Sector SPDR Fund (XLK) rose 1%. The tech sector rebounded broadly, with SpaceX surging 3% to lead the group. The aerospace and satellite company led by Elon Musk saw its shares rise after completing a nationwide spectrum asset acquisition deal.

AT&T, Verizon, and T-Mobile shares declined as investors worried the deal would intensify competition in the telecom industry. Other tech gainers on Friday included Lumentum and KLA, which rose 6% and 2% respectively.

The AI sector fell on Thursday after reports showed OpenAI disclosed to investors that its annualized revenue reached $50 billion at the end of September. The widely circulated figure last month was $68 billion, but people familiar with the matter said that number previously included gross revenue contributed by partners.

The Nasdaq Composite (.IXIC) dropped more than 1%, marking its largest single-day decline since mid-August. Earlier this week the tech-heavy index had just hit a record high, and Thursday was its second consecutive losing session.

Adam Crisafulli, analyst at Vital Knowledge, wrote: "This selloff reflects extreme positioning imbalances in the market, and in our view there is room for further unwinding, so the entire AI tech sector is unlikely to stage a sharp V-shaped recovery directly." He added: "When it comes to AI, the core issue is not the difference between gross and net revenue on an annualized basis, but two things: first, the business model attractiveness of independent frontier large-model labs is declining; second, there are growing signs that the market is starting to resist the flood of debt and equity financing pouring into AI."

So far this week, the Dow Jones and Nasdaq Composite are roughly flat; the broad S&P 500 is on track for a 0.6% weekly gain.

French Bonds Hit Especially Hard

U.S. Treasury prices resumed their decline. Previously, the bond market experienced a turbulent round of trading, with yields ultimately pulling back from multi-decade highs. On Friday, the 10-year U.S. Treasury yield rose 2 basis points to 5.25%.

European bond markets advanced, following the late-session rebound in U.S. Treasuries the previous trading day, with French government bonds leading the way. Earlier this week, France briefly became the focus of global investor attention due to fiscal pressures and political deadlock. The yield spread between French and German government bonds narrowed after a record weekly widening.

The extra yield investors demand to hold French 10-year government bonds rather than German equivalents was about 136 basis points, and the spread is on track to narrow by nearly 5 basis points this week. France was hit especially hard in this round of global bond selling.

With the 2027 presidential election approaching, investors are closely scrutinizing France's debt burden, fiscal deficit, and political outlook.

Trump Pledges No Attack on Iran

Brent crude oil fell below $103 per barrel. Previously, U.S. President Trump said the United States would not attack Iran before the midterm elections and stated that the U.S. and Tehran were engaged in "productive discussions."

In the prior session, Brent crude touched a two-week high amid fears that Middle East tensions could escalate imminently. Rising oil prices have been an important factor weighing on stock market performance, as persistently high energy prices keep concerns about the interest rate outlook alive, partially offsetting support from strong corporate earnings.

Previously, solid corporate profits helped push the S&P 500 to a record high. Meanwhile, although optimism about AI remains, there is still great uncertainty about which companies will ultimately reap substantial profits from it, especially against the backdrop of rising borrowing costs.

Francisco Simon of Santander Asset Management said: "The main risk facing the AI trade is not necessarily a collapse in demand, but rather a gradual slowdown in growth or monetization that ultimately fails to meet the market's increasingly ambitious expectations." He added: "Even incremental information could trigger an outsized market reaction."

Earnings Season in Focus Next Week

Santiago Mateo Yanguas of CaixaBank Asset Management said that as major U.S. banks unofficially kick off the third-quarter earnings season next week, corporate earnings performance will increasingly become the main driver of stock market moves rather than macroeconomic uncertainty. He said corporate results "will ultimately determine whether strong fundamentals can continue to support current equity valuations."

Mary-Sol Michel of Swiss Life Banque Privée noted that a mild correction in September has already brought equity valuations back to relatively reasonable levels, meaning the upcoming earnings season is expected to provide support for the market. She said: "We expect the AI trade to remain the main market driver, as the impact of OpenAI's latest revenue figures illustrates. Of course, rising oil prices are exacerbating inflationary pressures and pushing bond yields higher, but as the U.S. midterm elections approach, this situation is expected to ease to some extent."

AI Companies Spark New Wave of Debt Financing

Investors are also assessing a new round of financing plans in the tech industry. SpaceX, Broadcom, and Oracle are all expected to raise billions of dollars to purchase advanced AI chips.

Nvidia-backed Australian data center operator Firmus shelved its planned $5 billion initial public offering (IPO), citing market volatility, and said it would seek private financing instead.

Rising energy costs, expectations that central banks will raise rates further, and concerns over mounting government debt have combined to drive a sustained selloff in global bond markets for months, pushing borrowing costs ever higher.

Charu Chanana, chief investment strategist at Saxo Bank, said: "With long-term government bond yields back near multi-decade highs, investors can no longer value AI companies' growth prospects using the logic of an era when capital was cheap."

Chanana noted that rising sovereign bond yields, combined with increased debt financing by companies to build AI infrastructure, mean capital is becoming "more expensive and also more selective." This makes the strength of corporate balance sheets and the quality of future earnings core concerns for investors.

The dollar was relatively stable but still on track for a fourth consecutive weekly gain. The euro was headed for a fifth straight weekly decline. The euro traded around 1.123 against the dollar, near a 17-month low touched earlier this week, as concerns over French debt continued to weigh on the currency.

Gold rose more than 1% to around $4,191, briefly breaking above $4,200 intraday, supported by a slightly weaker dollar and falling oil prices.

Goldman Raises Rate Hike Expectations After Waller's Hawkish Remarks: Possibly Two More Hikes, 25 Basis Points in December

After Federal Reserve Governor Christopher Waller made hawkish comments at a central bank forum in Istanbul, Goldman Sachs chief economist Jan Hatzius said the Fed may choose to raise rates twice more rather than just once in December. Hatzius said in a report that two more hikes may be more appropriate, and the probability of only a December hike has declined. The analyst said Waller's remarks marked a hawkish shift from his previous emphasis on the three-month annualized core PCE inflation rate, though Goldman still expects the Fed to raise rates by another 25 basis points in December.

Bank of America: Investor Money Flooding into Cash Assets, Trend Unlikely to Change Soon

Bank of America strategist Michael Hartnett said investors are pouring money into cash-like funds at the fastest pace since the COVID-19 pandemic, and the allocation trend is unlikely to change in the short term. In a report released Friday, Hartnett noted that unless the Fed implements "large-scale monetary easing" and keeps cutting rates, a large pool of sidelined cash is expected to remain in money market funds. In the week through October 7, money market funds saw net inflows of $166.4 billion, the highest level since April 2020.