Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) experienced declines for a second consecutive day, driven by growing concerns about a potential AI bubble and inflated valuations. Recent data from Bank of America’s monthly global fund managers survey reveals that 45% of investors view an AI bubble as the most significant tail risk to the market, while 53% believe AI stocks are already overvalued. A tail risk refers to rare events that could have a disproportionate impact on the financial markets if they materialize. The survey also showed an average cash allocation of 3.7%, triggering a sell signal that has only occurred 20 times since 2022. Historically, such signals have led to drops in stock values, performing poorly compared to Treasuries over the following months, according to strategist Michael Hartnett.
In a related development, Sundar Pichai, CEO of Alphabet, voiced concerns regarding the future of AI during an interview with the BBC. When asked about Google’s potential immunity to an AI bubble burst, Pichai stated, “I think no company is going to be immune, including us.” He characterized the characteristics of the current AI surge as having both “rational” and “irrational” elements, drawing parallels to the internet boom prior to the Dotcom Bubble.
In political news, former President Trump expressed he has a candidate in mind to potentially succeed current Federal Reserve Chair Jerome Powell next year. “I’d love to get the guy currently in there out right now, but people are holding me back,” he remarked during an Oval Office interview. The leading candidate for the position appears to be Kevin Hassett, Director of the National Economic Council, who is predicted to have 48% odds on the prediction platform Polymarket. Fed Governor Chris Waller and Rick Rieder, the CIO of Fixed Income at BlackRock, are also considered contenders.
In labor market updates, ADP reported that private employers experienced a reduction of about 2,500 jobs per week for the four weeks ending November 1. This figure marks an improvement from the previous average weekly loss of 14,250 jobs for the four weeks ending October 25. ADP cautioned that these numbers are preliminary and may be adjusted as more data becomes available.
Additionally, initial jobless claims for the week ending October 18 were reported at 232,000, while continuing claims stood at 1.957 million. A spokesperson from the Department of Labor indicated that the data had been inadvertently published ahead of schedule, and a complete report is expected to be released later this week.
In closing, the S&P 500 (SPX) finished down by 0.83%, while the Nasdaq 100 (NDX) dropped by 1.20%. Investors are encouraged to keep informed with macroeconomic updates and events as they unfold.
