AI Valuation Worries Trigger Market Slump
U.S. stocks experienced a notable decline on Tuesday, following a broader slump in global equity markets. This downturn stems from growing concerns regarding inflated valuations of AI and technology companies. Investors fear that the Federal Reserve may not implement rate cuts in December, exacerbating market anxieties.
Market Performance Overview
The S&P 500 index dropped by as much as 0.6% during early trading. Should this trend continue throughout the day, it would signify the index’s longest losing streak since August, spanning four consecutive days. Other major indices, including the Dow Jones and Nasdaq, also faced declines.
Nvidia’s Impact on the Market
The losses come as Nvidia, the leading public company by market capitalization, is set to announce earnings on Wednesday. Many analysts regard Nvidia’s performance as a crucial indicator for the overall AI market. With a current valuation of around $4.6 trillion, concerns about AI stocks, including Nvidia, being overvalued have intensified.
Russ Mould, an investment director at AJ Bell, highlighted that the stakes are exceptionally high for Nvidia’s earnings report. He warned that even a slight disappointment could amplify market fears and trigger a broader sell-off. On Tuesday morning, Nvidia’s shares were down approximately 2.5% in early trading.
Expert Opinions on AI Stock Valuation
- Daniel Pinto, vice president at JPMorgan, cautioned that a significant correction in AI stocks could occur soon.
- Pinto suggested that this anticipated correction might also impact the S&P and the broader industry.
Global Market Trends
Global equities also reflected the negative sentiment. Japan and South Korea both reported dips, and European markets followed suit. The FTSE 100 in Britain fell by 1.3%, while France’s CAC 40 witnessed a 1.7% decline.
Upcoming Economic Data Concerns
Concerns are mounting ahead of delayed U.S. economic data releases scheduled for the upcoming days. This data set includes September’s job numbers, which have been postponed due to the recent government shutdown. If the reports indicate further inflation risks, this could diminish the likelihood of a Federal Reserve rate cut in December.
Federal Reserve Rate Decisions
Jerome Powell, the Federal Reserve chair, has raised doubts about a rate cut in his recent comments. After the last policy cut in October, Powell noted that a reduction in December is “not a foregone conclusion—in fact, far from it.” Boston Fed President Susan Collins echoed this sentiment, stating that maintaining current rates might be necessary to navigate inflation and employment risks.
On the other hand, Fed governor Christopher Waller expressed support for a potential rate cut in December, highlighting concerns over labor market trends. As of Tuesday, the CME FedWatch tool indicated a 47% probability of a December rate reduction, reflecting a drop of over 10% since the previous week.
