Markets steady after CoreWeave debt scare hits AI stocks

Global markets steadied on Friday, Oct. 16, after a day of AI-driven selling. Thursday's rout followed a jump in CoreWeave's ↘ 11.91% borrowing costs that renewed doubts about the debt paying for the artificial intelligence build-out. US stock futures rose slightly and Treasurys held steady as markets took a breather, The Wall Street Journal News Corp ↘ 0.54% reported. AI shares stayed weak, though. Chipmakers fell before the opening bell, and CoreWeave stock slid again in premarket trading.reuters.com

Asian markets bounced back. South Korea's Kospi climbed about 3% after falling nearly 8% on Thursday, and Japan's Nikkei 225 rose 1.5% after a drop of roughly 5%, Reuters reported. Most major European indexes also opened higher. Germany's DAX gained, while France's CAC 40 trailed on fiscal worries, according to investingLive.marketwatch.com+1

Distress-level bond yields

The selling began with CoreWeave's bonds. Yields on the cloud provider's 2031 notes, issued in April, rose above 16%, a level usually linked to companies in financial distress. The cost of insuring its roughly $50 billion in debt against default reached about 1,000 basis points, which implies close to a 63% chance of default within five years, Reuters reported. The stock dropped about 15.5% on Wednesday, its worst day since February, according to Axios.reuters.com+1

Chip stocks faced a second worry. Reports that China's CXMT has made progress on next-generation DRAM memory shook confidence in established makers such as SK Hynix ↘ 6.58% and Micron ↘ 5.63%, Reuters said. Pressure on chipmakers eased after Nvidia CEO Jensen Huang defended CoreWeave. "CoreWeave's financial strength is improving every day," he told reporters in Stockholm, according to The Irish Times. CoreWeave shares recovered from early losses and finished Thursday up 5.94%, WOL reported.wol.com+2

Wall Street's reversal

US stocks climbed back from steep early losses to close higher on Thursday. The Dow Jones Industrial Average gained 1.08% to 52,178.28, the S&P 500 rose 0.33% and the Nasdaq Composite added 0.08%, MarketWatch reported. Investors moved into safe assets. The 10-year Treasury yield fell 0.102 percentage point to 5.086%, its biggest one-day drop in more than a year. That happened even though September's producer price index jumped 1.3%, its largest monthly rise in more than four years.marketwatch.com

Volatility expected to persist

Analysts expect markets to stay choppy as tech earnings arrive over the coming weeks and investors weigh where Federal Reserve rates are headed, Reuters reported. Fed Chair Kevin Warsh said in Bangkok that he doesn't prejudge policy decisions, and markets put the odds of a rate hike at the end of October at about 28%. Barron's described the week as one of "earnings, inflation data, and AI debt fears".barrons.com+1

"The question is how long it can last," Reuters wrote of Friday's calm. It added that the spike in CoreWeave's bond yields "is still there."