US Stocks Slide as Tech Valuations, Labor Market Draw Fresh Concern

Traders work on the floor of the New York Stock Exchange. Photo by Michael Nagle /Bloomberg

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(Bloomberg) — Key stock indexes erased losses in a broad-based rally Tuesday afternoon, with the US government shutdown poised to end, even as US mega-cap tech shares sank and concerns about lofty valuations persist.

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The S&P 500 Index flipped green and rallied 0.2% as of 1:28 p.m. in New York, led by the healthcare and energy sectors. Paramount Skydance Corp. was the top-performing stock in the index, rising after the entertainment firm it would cut more jobs and costs than previously expected after a merger. The blue-chip Dow Jones Industrial Average climbed 1.1% and is on pace for a record closing high.

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The tech-heavy Nasdaq 100 Index, on the other hand, pared some earlier declines but was still down 0.3%. Nvidia Corp. slid after SoftBank Group Corp. sold its stake in the chip maker for $5.83 billion to fund other AI investments. Elsewhere in the tech sector, CoreWeave Inc. shares dropped after trimming its annual revenue forecast, prompting a downgrade to neutral from overweight at JPMorgan.

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Tuesday’s trading action shows a “much broader move to the upside,” with the equal-weight S&P 500 Index outperforming, said Louis Navellier, chief investment officer at Navellier & Associates. He called the gains for equal-weight S&P 500 a “move in the right direction,” given its badly underperformed it’s market-cap weighted counterpart this year.

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Strategists see the potential for stock gains with the end of the US government shutdown. JPMorgan’s Market Intelligence team said the reopening could release more liquidity into the market. Barclays said Tuesday they remain positive of US growth stocks given the expected lift provided by technology earnings.

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Still, concerns about tech and AI-related valuations abound on Wall Street. “The market remains expensive on a fundamental basis even when considering AI enthusiasm in its most potent state,” wrote Tom Essaye, founder and president of the Sevens Report.

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Investors have added to bearish bets on the stock market over the last week, according to data from Citi Research, including $3.75 billion in net new short bets on the Nasdaq. “New shorts have dominated flows across US equities,” analysts led by Chris Montagu wrote in a Tuesday note, adding the trend has been “accelerating through the past week.”

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Traders also got more data on the weakening US labor market, as ADP showed US private payrolls fell by an average of 11,250 positions per week in the four weeks to Oct. 25. Small business optimism in the US dropped to a six-month low in October on deteriorating earnings and concerns about the economic outlook. 

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Additional market events to come this week include results from Cisco Systems Inc. on Wednesday and Walt Disney Co. on Thursday.

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