AI Stocks Stumble as Burry Bets Against Nvidia; Crypto Crashes and Layoffs Accelerate
Market Snapshot
- 📉 S&P 500: 6,772 (-1.17%)
- 📉 Dow Jones Industrial Average: 47,085 (-0.53%)
- 📉 NASDAQ Composite: 23,349 (-2.04%)
- 📉 US 10-Year Treasury: 4.09% (-0.02%)
- 📉 Gold: $3,935 (-1.67%)
- 📉 Bitcoin: $100,191 (-5.97%)
- 📉 Ethereum: $3,181 (-11.68%)
- 📉 STOXX 600 (E.U.): -0.30%
- 📉 Nikkei 225 (Japan): Dipped below 50,000
- 📉 Kospi (South Korea): -6.16%
AI Rally Falters Amid Economic Jitters
The market’s recent AI-driven rally is facing a significant challenge as prominent financial leaders warn of dangerously stretched valuations, with some forecasting a correction of up to 20% this year. This sentiment has fuelled a broad sell-off in technology shares, leading to a sharp decline in the Nasdaq.
Investor apprehension intensified after Scion Asset Management's latest filings revealed that 'Big Short' investor Michael Burry has placed substantial bets against leading AI companies. The fund disclosed $187 million in put options against Nvidia and a $912 million short position against Palantir. The news contributed to a 4% decline in Nvidia's stock and an 8% fall for Palantir. In response to the move, Palantir CEO Alex Karp described it as “bats--- crazy” and “market manipulation.”
Market analysts have highlighted concerning metrics, such as the S&P 500's Shiller P/E ratio exceeding 40, a level previously reached only during the 1999 dot-com bubble. However, some commentators suggest the AI rally is not over but may be shifting focus from chipmakers to companies that implement AI, such as Amazon and Tesla.
Uncertainty is being compounded by the ongoing U.S. government shutdown, which has halted the flow of key economic data needed to inform future Federal Reserve interest rate decisions.
Cryptocurrencies Tumble in Broad Market Sell-off
The cryptocurrency market experienced a severe downturn, with Bitcoin falling below the $100,000 mark for the first time since June and Ethereum plunging by over 11%. The sell-off triggered the liquidation of more than $1 billion in leveraged positions across digital assets.
The crash is linked to a broader 'risk-off' sentiment spreading from equity markets, exacerbated by concerns that the Federal Reserve will not pursue further interest rate cuts this year. Some analysts suggest a U.S. liquidity crunch, caused by the government shutdown freezing Treasury spending, has drained capital from the system and stressed risk assets. The downturn also reflects profit-taking after Bitcoin reached all-time highs last month.
Corporate and Economic Headwinds
Corporate Earnings and Sector News
Several companies reported mixed fortunes. Advanced Micro Devices (AMD) beat earnings and revenue expectations with record third-quarter client revenue and strong guidance driven by its data centre AI business. However, its shares dropped nearly 4% in extended trading after its margin guidance was only inline with estimates. Server maker Super Micro also saw its shares sink by as much as 10% after missing Wall Street's expectations.
In the fast-food sector, McDonald’s missed third-quarter revenue expectations but reported growth in same-store sales. Meanwhile, fast-casual chain Cava saw its shares sink nearly 8% after cutting its full-year forecast for the second consecutive quarter.
Elsewhere, a bidding war has erupted in the pharmaceutical sector, with Novo Nordisk raising its offer for weight-loss drugmaker Metsera by over 30%, challenging an initial bid from Pfizer.
Labour Market and Economic Outlook
A post-pandemic trend of 'labour hoarding' appears to be over, as U.S. companies cut nearly 950,000 jobs in the first nine months of the year, the fastest pace of redundancies since the start of the pandemic. IBM, Amazon, and Target are among the firms announcing significant layoffs. Some experts suggest companies could be “AI-washing” their cuts, using the technology as a scapegoat for routine cost-cutting or a slowing economy. This trend is corroborated by data from Indeed, which shows its Job Posting Index fell to its lowest level since February 2021.
Signs of a U.S. economic slowdown are becoming more apparent. Cardboard box shipments, a key indicator of demand for goods, have dropped to their lowest third-quarter level in almost a decade, suggesting a weak holiday retail season. The housing market also remains under pressure, with Treasury Secretary Scott Bessent stating the sector is in a recession as first-time buyers now make up only 21% of homebuyers, far below the historic 40% average.
Global Market Developments
The downturn in AI stocks has had a significant impact on Asian markets. Japan's Nikkei 225 fell below the 50,000 mark, and South Korea's Kospi lost over 6%, weighed down by major chipmakers. SoftBank's market capitalisation fell by approximately $32 billion.
In other international developments:
- Saudi Arabia: State-owned oil firm Aramco has declared its ambition for the country to become a global leader in AI, leveraging its energy resources. The company recently acquired a stake in AI firm Humain.
- Norway: The country's $1.9 trillion sovereign wealth fund announced it would vote against Tesla CEO Elon Musk's proposed $1 trillion pay package, citing concerns over the award's size and shareholder dilution.
- India: Nvidia is expanding its footprint, becoming a founding member of a $2 billion investment alliance to train and mentor deep tech and AI startups in the country.
- South Korea: The Netflix film “KPop Demon Hunters” has reportedly generated $10 billion for the K-pop music industry, boosting shares of the “Big Four” entertainment companies: HYBE, JYP Entertainment, SM Entertainment, and YG Entertainment.
US Political Landscape
In U.S. politics, Democratic candidates swept key races in several states. Victories included Zohran Mamdani for mayor of New York City, Mikie Sherrill for governor of New Jersey, and both Abigail Spanberger for governor and Jay Jones for attorney general in Virginia.
NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).