U.S. stock futures experienced a notable decline on Tuesday as concerns regarding the sustainability of the AI-driven market rally emerged, coinciding with investors poised for the upcoming wave of quarterly earnings reports. S&P 500 futures fell by 1.3%, while futures for the tech-centric Nasdaq 100 saw a steeper decline of 1.6%. In contrast, futures for the Dow Jones Industrial Average, which is less reliant on technology, retreated approximately 1% or around 480 points.
The downturn in stock values is intensifying amidst growing skepticism about the longevity of this year’s tech-led rally, even as financial results indicate robust earnings. Notably, Palantir Technologies faced a sharp decline, with its shares plummeting over 5% despite exceeding third-quarter earnings expectations. Analysts suggested the firm’s valuation may be overstated, fueling concerns among investors.
This sell-off follows a mixed performance on Monday, where tech stocks, particularly those heavily invested in AI, had temporarily shined. Amazon, for instance, reached a record closing price after announcing a new partnership with OpenAI, contributing to a nearly 0.5% gain in the Nasdaq. The S&P 500 also saw a minor increase of about 0.2%.
Looking ahead, the earnings season is gearing up for a busy week, with more than 100 corporate earnings reports expected. Among the highlights for Tuesday are reports from Advanced Micro Devices (AMD), Uber (UBER), Spotify (SPOT), and SuperMicro (SMCI).
Investors are also closely monitoring the ongoing U.S. government shutdown, which has now entered its 35th day, matching the record for the longest stoppage in history. This prolonged shutdown is delaying the release of essential economic data critical for both the Federal Reserve and Wall Street, including the jobs report anticipated later in the week.
In a separate development, shares of Denny’s surged nearly 50% in premarket trading, as the casual dining chain announced an agreement to be acquired by a consortium of investors, which plans to take the company private.
Additionally, concern surrounding market valuations has prompted caution among Wall Street executives. Some CEOs are predicting a potential decline of over 10% in the equity market within the next 12 to 24 months. They suggest that such a correction could be beneficial for the market long term, despite strong corporate earnings. Mike Gitlin, CEO of investment manager Capital Group, noted during a financial summit that while corporate earnings remain solid, the challenge lies in determining the valuations of those stocks. He described the current valuations as being between fair and full, with most market participants likely agreeing that they are not perceived as cheap.
This sentiment was mirrored by executives from Morgan Stanley and Goldman Sachs, who also foresee the likelihood of a significant market pullback, reiterating that such fluctuations are a routine aspect of market cycles.
In after-hours trading, Palantir’s stock continued to struggle, falling more than 4% despite its favorable earnings report, as the debate over its valuation persists among analysts.
