Stocks Pressured by AI Jitters and Signs of US Labor Market Weakness

US equities are mixed, with the Dow advancing while the S&P 500 and Nasdaq declined, primarily pressured by weakness in AI-infrastructure and semiconductor stocks following CoreWeave's Q4 earnings warning and SoftBank's $5.83 billion Nvidia stake sale. Macroeconomic concerns also weighed on sentiment, including a weakening labor market indicated by ADP data and a drop in small business optimism, though progress on a US government shutdown provided some support. Despite these pressures, Q3 corporate earnings have been robust, with 82% of S&P 500 companies exceeding forecasts and earnings growth more than doubling expectations, while markets are pricing in a 70% chance of a 25 basis point Fed rate cut in December.

Analysis

US equities exhibited a mixed performance today, with the Dow Jones Industrials gaining 0.15% to a 1-week high, while the S&P 500 and Nasdaq 100 declined by 0.16% and 0.42% respectively. This divergence was primarily driven by significant weakness in AI-infrastructure and semiconductor stocks, notably CoreWeave's more than 10% drop following a Q4 earnings warning due to a data center delay, and Nvidia's over 2% decline after SoftBank's $5.83 billion stake sale. Other chip stocks also experienced declines of 1-3%.

Broader market sentiment was pressured by macroeconomic indicators, including a weakening labor market as evidenced by the ADP report showing US private employers shed an average of 11,250 jobs weekly, and the US Oct NFIB small business optimism index falling to a 6-month low of 98.2. However, market support emerged from progress on the US government shutdown, with the Senate passing a temporary continuing resolution and the House expected to follow suit, signaling an imminent resolution.

Despite immediate market pressures, the Q3 corporate earnings season is concluding strongly, with 82% of S&P 500 companies exceeding forecasts and aggregate Q3 earnings rising 14.6%, more than doubling expectations of 7.2% year-over-year. Concurrently, markets are pricing in a 70% chance of a 25 basis point Federal Reserve rate cut at the December 9-10 FOMC meeting, reflecting a dovish shift in monetary policy expectations, which supported T-notes today.

Key Decisions for Investors

• Re-evaluate exposure to AI and semiconductor stocks, scrutinizing holdings for potential guidance revisions or increased volatility following CoreWeave's Q4 warning and SoftBank's Nvidia stake sale.
• Leverage strong Q3 earnings, where 82% of S&P 500 companies beat forecasts, to identify fundamentally sound companies with positive outlooks that may offer selective investment opportunities amidst broader market pressures.
• Monitor evolving monetary policy expectations and economic data, particularly the 70% chance of a December Fed rate cut and signs of a weakening labor market, for shifts in interest rate policy that could impact asset allocation.