The Dow Jones Industrial Average saw a significant decline of over 300 points, approximately 0.7%, amidst growing concerns over an artificial intelligence (AI) bubble. Traders expressed apprehension that anticipated interest rate cuts from the Federal Reserve may not materialize as expected.
By early afternoon, the S&P 500 had decreased by 0.3%, and the technology-heavy Nasdaq fell by 0.6%, as investors reacted to fears suggesting that valuations of AI firms might be overly inflated. This trend marks a continued downturn in the tech sector, extending into its third consecutive week.
Nvidia experienced a drop of 1.5% ahead of its third-quarter earnings report, following an otherwise robust earnings season. The enthusiasm surrounding major technology stocks, often referred to as the “Magnificent 7,” has begun to wane, with major companies such as Amazon, Microsoft, and Meta reporting declines of 3.8%, 3%, and 1.1%, respectively.
James Denmert, chief investment officer at Main Street Research, commented that while all technology revolutions tend to produce bubble-like stock performance, the current trajectory of the AI sector remains strong, with no immediate signs of a downturn. He noted that despite high valuations, these stocks still reflect reasonable discounts relative to their earnings growth rates, and the overall sentiment in the AI market remains cautiously optimistic.
Investor sentiment was further rattled as the odds of a quarter-point rate cut at the Federal Reserve’s December meeting dropped below 50%, down from over 90% just a month prior, according to CME FedWatch. As market participants awaited the upcoming release of Fed minutes and the delayed September jobs report, concerns over a cautious approach to rate cuts from Fed officials heightened market anxieties, resulting in a 0.3% decline in gold futures, marking the fourth consecutive day of losses.
The S&P 500 dipped by 0.8%, with the Nasdaq falling further by 1.1%. Meanwhile, in a significant development within the tech sector, Anthropic announced a strategic partnership to purchase $30 billion worth of Azure compute capacity from Microsoft. Nonetheless, despite the magnitude of this deal, which includes a $5 billion investment from Microsoft and an additional $10 billion from Nvidia, both companies suffered substantial losses.
Adding to the worries surrounding the AI market, Alphabet CEO Sundar Pichai warned of potential “irrationality” in the current AI boom, suggesting that no company, including his own, would be immune should a bubble burst.
In other market movements, Bitcoin briefly dipped below the $90,000 mark before recovering slightly to reach around $93,249.46, reflecting the volatility often accompanying tech investments. Home Depot’s shares plunged by 3.8% after the company cut its full-year profit forecast and fell short of earnings estimates amid inflationary pressures on consumer spending.
Despite the unusual pullback in November, some experts believe this could set the stage for a strong finish to the year in the stock market. The recent performance of Nvidia, which is expected to report earnings on Wednesday, contributed to the day’s losses, as shares fell by 1.9%. Overall, the previous trading session had already seen the Dow decline by more than 550 points, and the S&P 500 and Nasdaq also witnessed drops of approximately 0.9%, indicating a broader trend of loss in the tech-heavy Nasdaq, which is now on track to break its seven-month streak of gains.
