Tech Shares Get Clobbered Early in November on Valuation Concerns
US stocks came off session lows on Friday as investors weighed bearish consumer sentiment data and odds that the AI investment boom will pay off, while monitoring the ongoing US government shutdown for any signs of an end.
The tech-heavy Nasdaq Composite (^IXIC) fell 0.3% as it shed more than 3% over the past five days, its biggest weekly loss since April.
The S&P 500 (^GSPC) also declined nearly 2% for the week, while the Dow Jones Industrial Average (^DJI) closed the session higher but ended the past five days with losses of more than 1%.
Stocks pared declines after Democrats laid down conditions for a deal to end the government shutdown, a proposal that Republicans subsequently rejected. Democrats had suggested including a one-year extension of expiring health care subsidies in legislation to reopen the government.Stocks ended a volatile week with the Nasdaq Composite posting the index's deepest loss since April, with seesaw stretches for "Magnificent Seven" stalwarts Nvidia (NVDA) and Tesla (TSLA). The S&P 500 and the Dow also closed out the bumpy week in the red as persistent worries about an AI bubble and Big Tech valuations run high.
Markets on Friday also digested more signs of an economic slowdown: namely, a bearish reading on consumer sentiment from the University of Michigan. Overall sentiment dropped to 50.3, the worst reading since 2022, as respondents fretted over the shutdown's effects.
Friday's data point came the day after October job cuts hit their highest level for the month in more than 20 years, underscoring what’s shaping up to be the worst year for layoffs since 2009.
The private data reverberated through Wall Street more than usual, given the current dearth of official updates on the economy. The Bureau of Labor Statistics was scheduled to release the October jobs report on Friday, but for a second straight month, the data's publication has been delayed by the government shutdown.
In the latest tech extravagance, Tesla approved a $1 trillion pay package for CEO Elon Musk on Thursday, setting high targets for growth in the EV maker's market value. Musk is also being asked to deliver on his promises for its robotaxi and Optimus humanoid robot — the hardware side of the AI boom. Tesla shares fell over 3%.
Bitcoin hovers near $102,000. Here's why one strategist sees the risk of going even lower in the near-term
Bitcoin (BTC-USD) had a rough week, with the token briefly slipping below $100,000 before trimming losses.
On Friday morning, the world's largest cryptocurrency was sitting as much as 20% below its all-time high of above $126,000, notched on October 6.
Wall Street has attributed the slide to early adopters offloading their large holdings. Since late June, net sales from long-term holders have exceeded 1 million bitcoin, according to research from Compass Point analyst Ed Engel.
A massive liquidation of leveraged crypto positions on Oct. 10 also weighed on the market, with bitcoin struggling to find a footing after breaking below support levels of $117,000 and then $112,000.
“We haven’t really reclaimed this level since then, and I think that’s a sign we are, unfortunately, in a bear market,” said Markus Thielen, founder and CEO of Singapore-based 10X Research.
Sean Conlon and Pia Singh also report the Nasdaq closes lower, capping its worst week since April:
The Nasdaq Composite closed lower Friday, pressured by more losses in artificial intelligence stocks, to post a losing week as new economic data added to investors’ fears of a slowdown.
The tech-heavy index shed 0.21% to finish at 23,004.54. In contrast, the S&P 500 and the Dow Jones Industrial Average inched into the green. The broad-based index gained 0.13% to close at 6,728.80, while the 30-stock index added 74.80 points, or 0.16%, to settle at 46,987.10. At their lows of the day, the Nasdaq had pulled back 2.1%, while the S&P 500 and Dow had fallen 1.3% and more than 400 points, or roughly 0.9%, respectively.
Stocks came off their lows after Senate Minority Leader Chuck Schumer, D-N.Y., offered up a new plan to Republicans that would enable the record-breaking U.S. government shutdown to end. Under the proposal, short-term funding would be provided for federal government operations in exchange for a one-year extension of enhanced Affordable Care Act tax credits.
In the midst of the stoppage, concerns among investors around the strength of the U.S. economy have grown. A survey from the University of Michigan revealed Friday that consumer sentiment has neared its lowest level ever. The data comes just a day after firm Challenger, Gray & Christmas reported that layoff announcements in October reached their highest level for the month in 22 years.
Investors have been getting little on the economic data front because of the ongoing shutdown. The Bureau of Labor Statistics would have released the nonfarm payrolls report Friday. For the second month in a row, however, it is unable to do so. Economists surveyed by Dow Jones had been expecting the report to show a decline of 60,000 jobs and an increase in the unemployment rate to 4.5%.
The Senate is expected to vote Friday on advancing a House-passed stopgap funding measure. The longest-ever federal funding lapse has posed a threat to economic activity, including causing flight disruptions due to shortages of air traffic controllers, who have been working without pay since October.
Transportation Secretary Sean Duffy said Wednesday that he will be cutting flights by 10% at 40 major airports starting Friday, a move that could affect 3,500 to 4,000 flights daily. As of Friday morning, more than 700 U.S. flights had already been canceled.
“No one likes the dark, and we’ve been in the dark for a while as far as government data is concerned, but I think we might further have some behavior being impacted,” Leah Bennett, chief investment strategist at Concurrent Asset Management, told CNBC. “I think that speaks volumes to why valuations should, at least in the short term, continue to erode.”
The three benchmark indexes closed in the red this week, as fears about elevated tech sector valuations and a highly concentrated market persisted. The Nasdaq was down around 3% week to date, seeing its worst performance in a five-day period since the week ended April 4, when the index dropped 10%. The S&P 500 and the Dow each lost more than 1% on the week.
Among Friday’s laggards was leading artificial intelligence player Oracle, which fell almost 2%. That brought its decline this week to just about 9%. Advanced Micro Devices, down nearly 9% on the week, and Broadcom, off by more than 5% this week, were lower as well.
Key AI leaders lost steam on Thursday, with Nvidia, AMD, Tesla and Microsoft posting significant declines that weighed on the broader market. Major U.S. stock averages closed lower across the board, with the tech-heavy Nasdaq Composite notably dropping 1.9% and the 30-stock Dow closing lower by almost 400 points.
“You have had a bit of a rotation, which has been helpful in the value stocks, which kind of leads me to believe that the sell-off isn’t overly concerning with the [‘Magnificent Seven’],” Bennett said, adding that “AI spending is still here.”
“This AI rally that we’ve had I think does resume,” she continued. “It’s hard to call the top, but I don’t think we’re at the end of it.”
Last week, the Fed, earnings and the government shutdown powered stocks higher.
This week, tech stocks got dinged and hyper-growth tech shares and AI darlings really got clobbered after their meteoric rise since Liberation Day.
Just have a look at the worst-performing US large caps this week (full list here):
There were so many bearish comments in the news this week, pick your favourite:
- Buffett indicator (market cap to GDP) at an all-time high
- Dr. Michael Burry warning of bearish activity in Nvidia and Palantir
- Government shutdown costing the economy billions each week
And the list goes on and on.
But if you were paying attention today, you saw shares of Nvidia bounce back and close marginally positive.
I don't know if it was the Democrats trying to reopen government that was the main reason for many stocks reversing course today or it was plain old FOMO.
Remember, most portfolio managers are underperforming their benchmark, they need to chase winners to make some gains.
They're going to be buying the Mag-7s on any dip, especially Nvidia.
The other thing I want people to keep in mind is we are a week away before fund 13Fs are made public.
I'm always highly suspicious when stocks sell off a week before 13Fs are made public, I call it hedge fund manufactured nonsense.
Who knows, maybe November will be a really bad month but I'm highly skeptical that the bubble is popping right now.
Was it a rough week for tech shares? Absolutely. Is it the beginning of a massive selloff in stocks? I strongly doubt it but will remain vigilant over the next couple of weeks (with a bullish bias).
Below, WisdomTree’s Jeremy Siegel joins 'Closing Bell' to discuss the government shutdown, anxiety over the AI trade and much more.
Next, 3Fourteen’s Warren Pies joins 'Closing Bell' to discuss the market's reaction to the latest government shutdown news, the unsettled equity market and much more.
Third, Wells Fargo’s Ohsung Kwon joins 'Power Lunch' to discuss if investors should buy the dip, the bull case for why equity indices will rally and much more.
Lastly, Morgan Stanley’s Chris Toomey joins 'Closing Bell' to discuss the government shutdown's impact on equity markets, the latest labor market data and much more.
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