Tech stocks took a hit on Tuesday as investors expressed concerns regarding inflated valuations within the sector. Notably, technology was the only sector among the 11 represented in the S&P 500 to close in the negative territory, while health care and energy stocks, which have experienced recent downturns, rebounded significantly.
Prominent in the day’s declines was Nvidia (NVDA), which fell 3% following news that SoftBank had divested its remaining stake in the AI chipmaker for approximately $5.8 billion. This sale raised eyebrows among investors who are closely scrutinizing market dynamics in tech. Meanwhile, CoreWeave (CRWV), an AI infrastructure firm that leases Nvidia’s chips, plummeted by 16.3% after releasing its earnings report. Although CoreWeave’s third-quarter revenue of $1.36 billion exceeded expectations and more than doubled year-over-year, the company offered disappointing guidance for full-year revenue, raising concerns about its growth trajectory.
In a call discussing the earnings report, CoreWeave CEO Michael Intrator cited operational challenges at one of their data centers, explaining that these issues are expected to be resolved by the first quarter of next year. Analyst Ruben Roy from Stifel pointed out that, despite these near-term concerns, CoreWeave has encouraging underlying momentum with its backlog nearly doubling to around $55.6 billion, bolstered by significant contracts with OpenAI and Meta. However, he maintained a “Hold” rating on the stock until supply chain issues are addressed.
On a more positive note, Nike (NKE) saw its stock rise by 3.9%, driven by an optimistic analyst report from BofA Securities. After a decline following its impressive fiscal first-quarter results released in late September, BofA analyst Lorraine Hutchinson argued that the recent pullback provides a compelling buying opportunity. She projected a path for ongoing improvement in sales and margins thanks to the company’s innovative strategies and product developments. Hutchinson set a target price of $84 for Nike, suggesting a potential upside of 33% from its current levels.
While Nike’s stock has a relatively minimal impact on the price-weighted Dow Jones Industrial Average, solid performances from higher-priced stocks like Amgen (AMGN) and McDonald’s (MCD) provided strong support for the index. Ultimately, the Dow closed 1.2% higher at a record 47,927, and the broader S&P 500 finished with a slight gain of 0.2% at 6,846, contrasting with a 0.3% dip in the tech-heavy Nasdaq Composite, which settled at 23,468.
On the economic front, data released by ADP indicated a downturn in job growth, revealing that private employers shed an average of more than 11,000 jobs each week for the four weeks ending October 25. This preliminary data points to a weak labor market during the latter part of the month, according to Nela Richardson, chief economist at ADP. Investors have been increasingly relying on private data in light of the prolonged government shutdown that has delayed the release of key economic reports.
However, there are signs that the government may soon resume operations, pending the approval of a short-term funding bill in the House of Representatives. Economic analysts, including José Torres from Interactive Brokers, anticipate that the September jobs report, which was postponed due to the shutdown, could be released imminently. Torres forecasts soft results that could elevate expectations for a potential interest rate cut by the Federal Reserve in December.
Current analysis from CME Group’s FedWatch indicates a 67% chance that the Fed will implement its third consecutive quarter-point rate cut at its upcoming meeting, a drop from 92% a month prior when Chair Powell suggested that such a move was not guaranteed.
