An AI leadership crisis and rising rate expectations
Why is Nvidia stock falling?
The week's biggest story landed Thursday morning. Jensen Huang, who co-founded Nvidia 33 years ago and built it into the company at the centre of the AI boom, resigned as CEO and from the board, effective immediately. CFO Colette Kress stepped in as interim CEO while the board searches for a successor.
Huang's exit capped a fast-moving scandal. Huang acknowledged an extramarital relationship that news reports tied to a suspected Chinese spy, prompting FBI and congressional inquiries. News of a second relationship, this time with an executive who reported to Huang, pushed the board to act Wednesday night. Huang may testify before the U.S. Congress as soon as next week.
The market reaction is the part worth reading. Nvidia shares fell hard through the week, dropping by more than 9% in after-hours trading on Wednesday, when the board's plans were reported, and the company's market value slipped below $4 trillion. Yet on Thursday the broader market rose, AI companies AMD and Broadcom gained about 3%, and the Nasdaq Composite index (which is comprised mostly of tech and high-growth stocks) steadied. Investors separated the company from the sector.
Demand for AI rests on hundreds of customers. Nvidia's premium rested partly on one man. Dan Ives, analyst and senior partner at Wedbush, a U.S. investment firm, valued Nvidia's stock at $300 with Huang and $225 without him. The national security angle adds a second layer. Nvidia already sits at the centre of the U.S.-China chip contest, and Washington now has a fresh reason to look more closely at it.
What's happening with U.S. inflation?
Monday opened with a rebound, with the S&P 500 index gaining 2.4% and recovering much of last Thursday's AI sell-off. Tuesday's October U.S. Consumer Price Index figures (a key measure of inflation) took the air out. Headline inflation rose by 0.4% against 0.3% expected, and core inflation (headline minus food and fuel) rose by 0.3% against 0.2% expected; this was core inflation's third straight 0.3% monthly gain. Over three months, U.S. core inflation is running close to 3.4% annualized, its fastest pace in more than a year.
Bonds moved fast. The two-year yield jumped about 19 basis points (0.19 of a percentage point) to 4.74%, its biggest daily gain since April 2025, and the 10-year yield briefly topped 5%. Expectations for a December interest rate increase from the U.S. Federal Reserve (the Fed) are now close to 90%, with a minority betting on a rise of half a percentage point, after Fed Governor Christopher Waller named 0.3% core inflation as his threshold.
The timing makes this data uncomfortable. Oil has fallen sharply from its October peak, and headline inflation is easing with it, but core inflation keeps climbing. Prices are now rising on their own momentum; this is the exact spillover central banks have been hiking interest rates to prevent. The Fed will meet on December 9 with a rate increase almost a certainty, and its size now open for debate.
Why is the loonie likely to weaken?
The drop in oil prices had a clear source: U.S. officials downplayed any imminent military action against Iran, and President Donald Trump said he plans to hold off on strikes. Crude slid to two-month lows early in the week, with Brent Crude near $90, about 20% below its October peak of over $112.
That helps inflation but squeezes the loonie, which slid to a four-week low close to U.S.$0.70. It is losing support from two sides at once; oil prices and interest rates. Lower oil prices weaken the demand for commodity-linked currencies (of which the loonie is one). Meanwhile, a December Fed rate increase would reopen the gap between the Fed's interest rate and the Bank of Canada's (BoC). That gap had only been narrowed two weeks ago when the BoC brought in its own rate increase.
The S&P/TSX (an index containing Canada's largest companies) shrugged off the news, however, rising by 0.7% Wednesday and holding within about 2% of its August record. For Canadian investors, the currency is doing the adjusting while the index holds.
What should investors look out for next week?
Next week, we'll be watching for data on Canadian inflation and U.S. retail sales for further clues on the direction of monetary policy. The Fed's meeting minutes should offer additional insight into its concerns over persistent inflation, while Canadian retail sales will help assess the strength of domestic demand. Also, Nvidia will publish its earnings results, which should also draw attention, particularly given this week's developments. However, the broader question will be whether economic growth can withstand higher interest rates.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
