New York Post | Dow plunges nearly 500 points on fears of AI bubble, waning hope for Fed rate cut
The Dow Jones Industrial Average plunged nearly 500 points, or 1.1%, Tuesday as fears over an AI bubble shook the market and traders fretted that rate cuts from the Federal Reserve aren’t a sure thing.
It was fourth straight decline for the blue-chip index and the S&P 500, which dipped 0.8%. The tech-heavy Nasdaq slid 1.2% as investors panicked over whether AI firms have been overvalued – extending a rocky tech rout into its third week.
Shares in Nvidia fell nearly 3%. The chipmaker is reporting its third-quarter results on Wednesday, toward the end of an especially upbeat earnings season.
But “Magnificent 7” tech stocks have dropped amid fears that AI enthusiasm is reminiscent of the “dot-com bubble” of the 1990s and early 2000s.
“All technology revolutions create bubble-like stock price performance – but this bubble is still inflating at a healthy pace with no signs of popping anytime soon,” James Denmert, chief investment officer at Main Street Research, said in a note Tuesday.
“Valuations, while expensive, still trade at discounts to earnings growth rates and overall AI market sentiment is mildly bullish and not euphoric.”
Odds of a quarter-point cut at the Fed’s December meeting plunged to just over 50% – down from more than 90% this time last month, according to CME FedWatch, which tracks Fed Funds futures prices.
Investors are looking ahead to the release of Fed minutes on Wednesday. The September jobs report, which was delayed by the government shutdown, is due out Thursday.
Despite the upcoming data releases, which are key to the Fed’s decision-making process, several officials have continued to advocate for a slower rate-cutting pace.
That has spooked investors who are eager for low interest rates – sending gold futures down 0.3% to $4,062 for its fourth straight day of declines.
Meanwhile, Anthropic on Tuesday announced plans to buy $30 billion of Azure compute capacity from Microsoft as part of a new strategic deal.
Microsoft will invest $5 billion into Anthropic, and Nvidia will give $10 billion to the startup as part of the deal.
While massive AI partnerships would usually send stocks soaring, both Microsoft and Nvidia saw big losses. Anthropic is a private company.
Further adding to fears of an AI bubble, Alphabet CEO Sundar Pichai told BBC on Tuesday that there is some “irrationality” in the current AI boom.
In the case of an AI bubble bursting, “I think no company is going to be immune, including us,” Pichai said.
Bitcoin dropped briefly below $90,000 on Tuesday. Many tech investors with substantial AI holdings also own cryptocurrency. By about 12:52 p.m., the cryptocurrency jumped 1.3% to $93,249.46.
Shares in Home Depot plummeted 6% after the company cut its full-year profit forecast and missed earnings estimates as inflation-battered consumers hold off on renovations.
While a November pullback is unusual, it could set up the stock market for a strong December and end to the year, Denmert said in his note.
In the previous trading session, the 30-stock Dow fell more than 550 points, while the S&P 500 and Nasdaq each dropped about 0.9%.
The tech-heavy Nasdaq appears on track to break its seven-month streak of gains.
Disclosures: Main Street Research LLC (“MSR”) is an SEC registered investment adviser; however, this does not imply any level of skill or training, and no inference of such should be made. The opinions expressed herein are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. We provide historical content for transparency purposes only. All opinions are subject to change without notice and, due to changes in the market or economic conditions, may not necessarily come to pass. Mention of a security should not be considered a recommendation or solicitation to purchase or sell the security, and any securities mentioned may be held by MSR for client portfolios. The information posted represents an opinion as of the date published and should not be considered an investment recommendation. MSR does not become a fiduciary to any reader or other person or entity by the person’s use of or access to the material. The reader assumes the responsibility of evaluating the merits and risks associated with the use of any information or other content and for any decisions based on such content. Investment disclosure —neither the information nor any opinion expressed herein constitutes a solicitation by main street of the purchase or sale of any securities or other financial instruments nor a recommendation to hold, sell, buy, or own a particular security or sector in your portfolio and do not represent all securities purchased, sold or recommended for client accounts. The listener should not assume that an investment in these securities has been or will be profitable. Individual recommendations are tailored to individual portfolios. Main street client portfolios are managed separately and vary in regard to risk and return dependent upon individual client circumstances. A full list of all securities in the MSR client portfolio is available upon request.
