AI Rout Finds a Floor. For Now.

AI stocks rebound after signs of stress in the trade continued overnight, plus Iran threatens to hit US military assets and civilian targets if Israel and the US intensify strikes after the midterms. The US is well aware that Iran is preparing for strong retaliation and basically the US is bifing up his foresees, including Fred Walshie coming to the region, and will Central Park's horses be put out to pasture after City Council votes to ban carriages. It's Friday, October 23rd, on Daniel Vock for the Wall Street Journal filling in for Luke Vargas, and here is the AM edition of What's News, The Top Headlines, and Business Stories moving your world today. Others are pausing the sell-off in AI stocks after the NASDAQ notched its worst day since June yesterday. NASDAQ futures are inching higher despite global tech stocks struggling to mount a significant rally as investors continue to assess the massive borrowing fueling the AI build out. Case in point, South Korea's SK Heinex has whipsod today, falling more than 4% and then rising by as much after the group called off a listing for its memory chip unit in the US. The world's second largest memory chip maker cited recent market conditions, but said the move didn't reflect any change in the unit's prospects for growth. Meanwhile, political uncertainty over the AI build out is driving a wedge through America's multi-trillion dollar public pension system. The AI craze has driven markets to record after record, with 13 of the largest public pension funds having racked up about $138 billion in returns from AI link stocks between the end of 2022 and June. Journal Finance reporter Jo Wallace says that's come as politicians in states like New York and Pennsylvania are pushing back against AI projects like data centers in contrast to those pension fund investments. So the portion of the stock holdings allocated to these AI-religious stocks has more than doubled in under four years. And I think it's fair to say that the financial stakes are somewhat higher here. So in the past fund managers running pension pots have, for example, backed away from South Africa-related investments under political pressure in the apartheid era. They've similarly trimmed holdings related to firearms, for example. Right now, these AI stocks have driven 57% of the funds stock gains over the past four years. Almost a third of their domestic stock holdings are in AI-related stocks. And the boom in AI-related shares has helped push these funds to funding levels they've not enjoyed in years. So to back away from that would potentially leave quite a lot of money on the table for pensioners, assuming that the boom continues, obviously there have been jitters of late. On the other hand, a lot of politicians and voters think that the ethical, moral, environmental stakes are equally high. Less than two weeks to go until the midterms and polling is now broadly showing Democrats firmly in the lead as President Trump's approval ratings hit a new record low. At the same time, attack ads are reaching a fever pitch. In Ohio's closely watched governor race, Trump has defended an ad against Democratic candidate Amy Acton. "What the mother said is terrible from the standpoint that I wouldn't want somebody like that to be the governor for great stuff." The ad which featured Acton's estranged mother came from GOP candidate Vivek Ramaswamy's campaign and has drawn criticism from both Democrats and Republicans. Acton has been estranged from her mother since childhood when her stepfather was charged with sexually abusing her. Speaking to WTOL11, she said that her focus is on the campaign. "I'm not stunned in the era we live in. And that said, you know, what has also been remarkable to see, Lauren, is how many people are outraged by this." GOP candidate Ramaswamy started as the favorite in the battleground state of Ohio thanks in part to Trump's endorsement, but Ramaswamy has seated ground in recent months with recent polling showing Acton ahead. Oil prices are on track for a weekly gain after climbing to a five-month high over fears of fresh escalation in the Middle East. We're exclusively reporting that Iran has warned it will strike U.S. warships, military bases and Gulf civilian infrastructure if the U.S. and Israel resume strikes on the country. The warnings come a day after our colleagues, including correspondent Ben Moffo Khan reported that the U.S. was moving additional naval forces to the Middle East in preparation for fresh strikes after the midterms. So Iran has been getting ready at every level for a war. Iran has said very publicly that they will go after the Internet assets, not just the energy assets, and that means, for instance, several of the C-cables that cross through the Strait of Omers and that key data arteries for global movement of information. That's 1-K-11. 7-1 have heard its potential land operation, special forces in countries like, for instance, can wait to send a video shock into the region showing that it's not just missiles and drones, and the third one is the potential attacks outside the region. And on that, we have seen an example with the plot to use drones to attack the fearful base in the UK, and a lot of experts think that that's kind of the way forward potential terrorist attacks or asymmetrical attacks, you know, in Europe or in the U.S. That was journal Middle East correspondent Ben Moffo Khan. Coming up an exclusive look at how an airfield attack in East Germany marked an opening shot in Russia's sabotage campaign against Europe. That story after the break. Back in early August, near the German city of Leipzig, drones carrying explosives attacked a cargo plane used to carry military assistance to Ukraine. The assault ultimately failed, but we're exclusively reporting that Russian President Vladimir Putin is now scaling up a sabotage offensive against Europe as he looks to give momentum to a stalled war effort in Ukraine. Our Luke Vargas spoke to the journal's chief European political correspondent Bojen Panchevsky and began by asking about Russia's intent. So based on Western intelligence sourcing and some Russian sourcing, we learned that Vladimir Putin at some time in early summer issued a green light that go ahead for intensifying the sabotage campaign on NATO soil in Europe. Essentially, Russian generals have long sought to be able to strike the logistical notes that are supporting Ukraine's war effort. And now, essentially, Europe is the industrial hinterland of Ukraine in a way, in terms of manufacturing of weapons, of parts, for drones, of financing, everything else. And the way Ukraine, with the long strike, is attacking Russian factories, deep in the rear. That's the way Russia sees now Europe countries like Poland or Germany. So essentially Putin gave the go ahead, and ever since that happened, things escalated dramatically. One of the first major warning shots was the failed attempt to attack the airport in Leipzig. In a way, it was a game changer because essentially had the attack succeeded the way it was designed to succeed. It would have destroyed large parts of the airport in Leipzig, Hale, which is one of the key cargo airports in Europe. So it would have been an extremely disruptive development. And it would have caused human casualties. So it was extremely serious. In fact, had it succeeded, the Germans would have had to consider whether to seek support from NATO and what is known as the collective defense clause. So it would have been probably the worst attack on German soil since the Second World War. And then there was a string of similar attacks, arson attacks on factories, and for example, in Estonia, in Poland, in Slovakia. These are factories that are producing things that Ukraine uses to attack Russia, predominantly drones, but also components for missiles and things like that. There have been very severe drone attacks on commercial shipping off the shores of NATO countries, Romania, and Bulgaria. So you know, things are getting worse pretty much by today. All right. That gives us a little bit of a sense of the various targets that Russia may have in its site, though we should note, that the Kremlin didn't respond to requests for comment on your reporting and has denied involvement in sabotage operations. But on how are NATO allies in Europe responding to this? I mean, namely, are they prepared? Were there to be a massive Russian escalation, the kind of direct confrontation we were talking about in a potential article five incident? Well, you can never be too prepared for something like that. I mean, obviously they are now fully awake to what is happening. But essentially, NATO is in a bind because these countries are democracies and they're not going to respond with a tit-for-tat attack. So, you know, Germany is not going to blow up a Russian airport or it's not going to down a Russian cargo airliner in response. So there is a challenge in being a rule of law democracy where parliament ultimately makes the decisions for something like that. This is not declared warfare, but the instruments are becoming frighteningly similar to that of a real war, you know, a drone attack in the midst of Germany, for example, or a drone attack off the shores of Romania. They're struggling essentially in finding a way how to respond to this because the response should have a deterrence effect and, you know, it should be some sort of retaliation. But how do you retaliate against something like this? Yeah. Boeing on this week from the White House has been about possibly accepting Vladimir Putin's offer of trilateral talks with China's Xi Jinping in spite of objections coming from Ukraine about the timing of this diplomatic engagement with Moscow. Is that at all factoring into the European calculus about their vulnerability at this moment? Well, look, I think for a while now the Europeans have figured they are very much on their own to a certain extent, right? So they've been trying to kind of reconfigure their defense posture in the knowledge that the United States is becoming ever more aloof. That is just the fact. I mean, recently I was talking to very senior officials in Finland, which joined NATO most recently, and they told me NATO is for us an add-on to our defense posture. So they're not even considering NATO to be fundamental. That's the kind of mood in that particular country, which is on the front line, essentially. It has a very long border with Russia. So they are trying to figure out ways of deterring Russia and dealing with Russia without relying too much on the White House. Bolion, Pam Chebsky, is the Wall Street Journal's chief European political correspondent, Bolion? Thank you so much for bringing us this story. Thanks so much for having me on. And finally, Horsestron carriages have been a staple of Central Park dating back more than 160 years, not to mention a mainstay of many New York romcoms. But last night, New York City Council voted to ban horse carriages after decades of criticism from animal rights activists. A debate that picked up steam in June after a tourist was killed after being thrown from a carriage a week after a horse collapsed and died on the job in a separate incident. The legislation will shut down the industry in June 2028. Here's carriage horse driver Alexis Lawson. It's happening so fast, not because of facts, not because of safety. If we were so dangerous, why can we continue working for an extra two years? If it's not for animal welfare, why would we continue working for two years if it's so dangerous and it's so poor for horses? Mayor Zoran Mamdani supports the legislation, but speaking last week said there are still some details to figure out, like how to support workers. We have to both protect the workers, protect the workforce that has found their livelihood from this job. And then when it comes to the horses, I don't think the vision is that the horses would then continue to perform this kind of work elsewhere. There have been a lot of different proposals that have been forward, whether it's sanctuary, whether it's then being taken in by farms, things of that nature. That's everything we're going to be investigating, but I want to be very clear that our commitment to the workforce is going to be one that will become more explicit than what is broadly gestured at in the legislation. The union that represents horse carriage workers said they would sue in federal court to reverse the ban. It said the death of the tourist over the summer was tragic, but noted it was the only human fatality associated with the industry and that e-bike and scooter crashes regularly kill riders and pedestrians without lawmakers imposing similar bans. And that's it for what's news for this Friday morning. Additional sound in this episode was from Reuters. Today's show was produced by Hattie Moire. Our supervising producer is Sandra Killhoff and I'm Daniel Bach for the Wall Street Journal. We'll be back tonight with a new show. Until then, have a great weekend and thanks for listening.