US stock markets exhibited mixed results on Tuesday, with the S&P 500 experiencing a 0.3% decline, primarily due to a significant downturn in technology stocks. Conversely, the Dow Jones Industrial Average managed to gain 85 points, or 0.2%, while the Nasdaq Composite fell by 0.6%, following a day of robust gains.
The technology sector was under considerable pressure. Shares of CoreWeave tumbled by 11% after the company provided disappointing earnings guidance, raising concerns within the broader AI market. Nvidia, a leading player in AI chips, also saw its stock drop by 3% following the news that SoftBank sold its entire stake in the company for a substantial $5.83 billion. This sell-off contributed to the decline of the Technology Select Sector SPDR Fund (XLK), which tracks S&P 500 tech stocks and lost nearly 1%. Investors were seen reevaluating the valuations of tech companies as the AI market showed signs of overheating.
Compounding the cautious tone in the market, a recent ADP report revealed that private sector job creation had decreased by over 11,000 per week for the four weeks ending October 25. This downturn indicates a potential slowdown in the labor market, contrasting sharply with gains reported earlier in October and suggesting diminished hiring momentum heading into the year’s final quarter.
Market sentiment had initially rallied on Monday in anticipation of a resolution to the ongoing US government shutdown. The Senate passed a bill late that day aimed at reopening the government, which is now pending approval in the House. This legislation funds government operations through January, reverses all shutdown-related layoffs, and assures federal workers will receive back pay. However, the agreement does not encompass a Democratic request to extend Affordable Care Act subsidies but does promise a vote on tax credits in December.
Sonu Varghese, a global macro strategist at Carson Group, commented that ending the shutdown removes a significant economic risk and will allow for the resumption of essential federal economic data ahead of the Federal Reserve’s December meeting. This, he noted, is crucial to prevent the Fed from making decisions without adequate data.
International developments also contributed to market fluctuations. Reports emerged indicating that China plans to deny rare earth exports to US military-associated firms. This proposed “validated-end user” system seeks to allow rare earth shipments to the US while blocking access for defense-related companies, potentially impacting industries such as automotive and aerospace that serve both civilian and military clients. This situation follows a recent trade truce between Presidents Trump and Xi Jinping, where the US agreed to reduce tariffs in exchange for China lifting some rare earth export restrictions.
The news surrounding SoftBank’s sale of its Nvidia shares signals a strategic shift in the company’s investment approach. This month, the firm sold 32.1 million shares of Nvidia, alongside part of its stake in T-Mobile for approximately $9.17 billion, as part of an asset monetization strategy aimed at enhancing financial flexibility and investing more in OpenAI-related ventures.
In company-specific movements, Paramount Skydance saw its stock jump by 5.7% after reporting strong earnings and announcing plans to cut costs while raising streaming prices in the upcoming year. Meanwhile, Rigetti Computing’s shares dropped by 5% as its revenue of $1.9 million fell short of analyst expectations of $2.2 million.
Overall, the S&P 500’s drop reflects a retreat after Monday’s rally, impacted substantially by weakness in tech stocks. Major players like DoorDash, Duolingo, and Roblox faced significant declines amid worries about rising AI-related investments and their potential impact on profitability. In contrast, megacap stocks like Apple and Microsoft managed to stabilize, providing some support against deeper losses across the S&P 500 repertoire.
As attention turns to the House vote on the spending bill and forthcoming inflation data, analysts suggest a potential rotation toward cyclical sectors including energy, financials, and consumer staples, especially if the labor market data continues to weaken or if the Fed indicates a hawkish stance in its December meeting. With the market remaining sensitive to earnings revisions and economic indicators, traders are closely monitoring whether the S&P 500 can maintain stability above the critical 5,000 level, which is essential for sustaining market momentum as the year draws to a close.
