Market Update
The S&P 500 Index closed lower on Tuesday, down -1.17%. The Dow Jones Industrial Average followed, slipping -0.53%, while the Nasdaq 100 Index experienced a more significant drop of -2.07%. December E-mini S&P futures fell -1.17%, and December E-mini NASDAQ futures dropped by -2.08%.
U.S. stock indexes saw a decline, with the S&P 500 hitting a low not seen in 1.5 weeks, and both the Dow Jones Industrial Average and Nasdaq 100 reaching one-week lows. Palantir Technologies, a major player in AI, led the downturn in AI infrastructure stocks, dropping more than -7% despite reporting higher-than-expected revenue for the third quarter. The company’s price-to-sales ratio climbed to 85 times, the highest in the S&P 500, raising concerns about overvaluation and initiating a wave of selling. There was also noticeable weakness among major tech stocks and semiconductor manufacturers, which affected market performance.
Concerns about valuations impacted stock prices and fueled a risk-off sentiment in asset markets after warnings from various Wall Street banks. During a summit in Hong Kong, representatives from Morgan Stanley and Goldman Sachs warned that the stock market could decline by more than 10% in the next year or two, attributing their caution to the substantial rise in the S&P 500—over 35% since April—to its recent record high.
On a more positive note, the drop in bond yields on Tuesday somewhat supported the stock market, with the yield on the 10-year Treasury note falling by -2 basis points to 4.09%.
In other news, U.S. car sales in October slowed to 15.32 million units, missing expectations of 15.5 million and marking the lowest figures in 14 months. The market anticipates a 69% probability of an additional 25 basis point rate cut during the upcoming FOMC meeting on December 9-10.
All eyes are turning to Wednesday’s Supreme Court oral arguments on the legality of President Trump’s reciprocal tariffs. These arguments could give insight into the Court’s future decisions, with rulings expected by late this year or early next year. Previous lower court decisions deemed these tariffs illegal, based on claims of emergency powers. If the Supreme Court supports these rulings, it could necessitate the U.S. government to reimburse over $80 billion in duties and further limit Trump’s tariff authority.
This week, the third-quarter corporate earnings season continues, with 136 companies in the S&P 500 set to report. According to Bloomberg Intelligence, an impressive 80% of S&P 500 companies that have reported thus far exceeded expectations, signaling a solid quarter since 2021. However, year-over-year profits are forecasted to rise only 7.2%, the smallest increase in two years, indicating potential slowing growth.
The ongoing U.S. government shutdown, currently the longest in history at six weeks, is impacting market sentiment and the economy, with many government reports delayed as a result.
Globally, stock markets fell on Tuesday. The Euro Stoxx 50 hit a two-week low, down -0.34%. In Asia, the Shanghai Composite Index closed lower by -0.41%, and Japan’s Nikkei Stock Average dropped -1.74% from its all-time high.
In bond markets, the December 10-year Treasury note closed higher on Tuesday, rising +3.5 ticks, while the yield decreased -2.5 basis points to 4.085%. The demand for safe-haven government bonds contributed to this price support.
In European markets, government bond yields also declined, with Germany’s 10-year federal bond yield at 2.654%, down 1.3 basis points, and the UK’s 10-year bond yield falling -1.0bp to 4.425%.
Concerns about growth in the euro area are still present, yet some resilience is noted. Inflation risks stem from rising commodity and food prices, as well as potential supply disruptions. ECB member Mr. Lane emphasized the importance of flexibility in policy-making amidst these economic uncertainties.
U.S. securities continued to struggle as tech stocks dipped, notably Tesla falling over -5% and Nvidia down over -2%. Other tech giants like Alphabet and Amazon also saw declines of more than -2%. While Apple managed a slight increase, semiconductor stocks faced even steeper drops, with Micron Technology down more than -6% and Intel over -5%.
Bitcoin fell more than -6%, reaching a four-and-a-half-month low, impacting various cryptocurrency stocks negatively. Additionally, Sarepta Therapeutics plummeted over -33% after disappointing results in its studies for Duchenne muscular dystrophy.
Norwegian Cruise Line led declines in the S&P 500, dropping over 15% following third-quarter revenue that fell short of expectations. Other cruise lines saw declines as well, contributing to a bleak day for the sector.
In contrast, some companies did report positive earnings, such as Expeditors International and Henry Schein, both posting revenues that exceeded expectations, boosting their stock prices by more than 10%.
Marriott International experienced a rise of over +3% after reporting strong earnings that exceeded consensus expectations.
Upcoming Earnings Reports
Several companies are set to report their earnings in the coming days, including notable names like McDonald’s, Johnson Controls, and Qualcomm, among others.
