Key Takeaways
- U.S. stock indexes experienced a downturn on Tuesday, with the S&P 500 reaching a 1.5-week low and the Dow Jones and Nasdaq 100 hitting 1-week lows.
- Valuation concerns, heightened by warnings from major Wall Street banks, contributed to a risk-off sentiment in financial markets.
- The semiconductor and AI infrastructure sectors saw significant declines, with Palantir Technologies leading the drop among AI bellwethers due to valuation worries.
- Traders are anticipating a potential Fed rate cut in December, with market pricing reflecting a high probability.
- Upcoming Supreme Court arguments on reciprocal tariffs and the ongoing U.S. government shutdown are factors influencing market sentiment.
Market Performance Overview
U.S. stock indexes retreated on Tuesday. The S&P 500 Index ($SPX) closed down 1.17%, the Dow Jones Industrials Index ($DOWI) fell 0.53%, and the Nasdaq 100 Index ($IUXX) dropped 2.07%. December E-mini S&P futures (ESZ25) decreased by 1.17%, while December E-mini Nasdaq futures (NQZ25) declined by 2.08%.
The S&P 500 reached a 1.5-week low, and the Dow Jones Industrials and Nasdaq 100 both closed at 1-week lows.
AI and Tech Stock Weakness
Shares of AI bellwether Palantir Technologies (PLTR) fell over 7% on Tuesday. Despite reporting better-than-expected third-quarter sales, concerns about its high price-to-sales ratio, the highest in the S&P 500, sparked profit-taking. The broader weakness in Mega Cap technology stocks, particularly those in the AI infrastructure and semiconductor spaces, contributed to the market’s decline.
The Magnificent Seven stocks experienced pressure, with Tesla (TSLA) down over 5%, Nvidia (NVDA) down over 2%, Alphabet (GOOG) down over 2%, Amazon.com (AMZN) and Meta Platforms (META) down over 1%, Microsoft (MSFT) down 0.52%. Apple (AAPL) was an exception, closing up 0.37%.
Semiconductor stocks also faced headwinds. Micron Technology (MU) dropped over 6%, and Intel (INTC) fell over 5%. Other decliners included ARM Holdings Plc (ARM) and Microchip Technology (MCHP) down over 4%, and various others like Advanced Micro Devices (AMD), ON Semiconductor (ON), Qualcomm (QCOM), GlobalFoundries (GFS), and Lam Research (LRCX) down over 3%.
Valuation Concerns and Bank Warnings
Valuation concerns permeated asset markets, contributing to a risk-off sentiment following warnings from Morgan Stanley and Goldman Sachs. Both institutions suggested that equity markets might be due for a pullback of over 10% in the coming 12 to 24 months.
This caution stems from the significant rally in the S&P 500, which has surged more than 35% from its April lows to reach a record high last week.
Economic Data and Fed Watch
💡 U.S. total vehicle sales in October, reported by Wards, slowed to 15.32 million units, falling short of the 15.50 million expected and marking the lowest figure in 14 months.
📊 The markets are factoring in a 69% probability of a 25 basis point rate cut by the Federal Open Market Committee (FOMC) at its upcoming meeting on December 9-10.
The bond market saw the 10-year T-note yield decrease by 2 basis points to 4.09%, with T-note prices rising due to increased safe-haven demand amid the stock market decline.
Supreme Court Tariffs Case and Government Shutdown
Markets are closely watching oral arguments at the Supreme Court regarding the legality of President Trump’s reciprocal tariffs. A ruling against the tariffs could have significant implications, potentially requiring the U.S. government to refund over $80 billion in collected tariffs and limiting future tariff imposition powers.
⚡ The ongoing U.S. government shutdown, now in its sixth week, continues to be the longest in history. This shutdown is delaying economic data releases and negatively impacting market sentiment and the broader U.S. economy.
The prolonged shutdown is seen as a factor that could potentially lead to additional job losses, reduced consumer spending, and a weakened economy, which might influence the Federal Reserve’s monetary policy decisions, potentially supporting further interest rate cuts.
Global Market Performance
Overseas stock markets also closed lower on Tuesday. The Euro Stoxx 50 fell 0.34% to a two-week low, China’s Shanghai Composite declined 0.41%, and Japan’s Nikkei Stock 225 dropped 1.74% from a record high.
Interest Rate Landscape
December 10-year T-notes (ZNZ5) closed up by 3.5 ticks on Tuesday, with the 10-year T-note yield falling to 4.085%. Prices moved higher, supported by safe-haven demand arising from the stock market slump.
European government bond yields were also lower. The 10-year German bund yield decreased by 1.3 basis points to 2.654%, and the 10-year UK gilt yield fell by 1.0 basis point to 4.425%.
ECB Governing Council member Rehn described Eurozone growth as sluggish but resilient and noted that inflation risks are balanced. He emphasized the need for maintaining flexibility in decision-making regarding interest rates.
ECB Governing Council member Stournaras highlighted downside risks to the Eurozone’s growth prospects, including trade policy uncertainty, geopolitical tensions, and political uncertainty in France.
Market pricing indicates a 6% chance of a 25 basis point rate cut by the European Central Bank (ECB) at its next policy meeting on December 18.
Key U.S. Stock Movers
Beyond the major tech and semiconductor companies, several other U.S. stocks made significant moves on Tuesday.
Notable Declines
- Cryptocurrency Stocks: Major cryptocurrencies, including Bitcoin (^BTCUSD), fell more than 6% to a 4.5-month low. This led to declines in crypto-related stocks such as Coinbase Global (COIN), Galaxy Digital (GLXY), Mara Holdings (MARA), Strategy (MSTR), and Riot Platforms (RIOT), all down over 6%.
- Sarepta Therapeutics (SRPT): Closed down more than 33% after a study of its Duchenne muscular dystrophy treatments missed a primary endpoint.
- Norwegian Cruise Line Holdings (NCLH): Led S&P 500 losers, down over 15%, after its Q3 revenue fell short of consensus. Carnival (CCL) and Royal Caribbean Cruises (RCL) also declined significantly.
- Zoetis (ZTS): Fell over 13% after cutting its full-year revenue forecast.
- CDW Corp (CDW): Was a Nasdaq 100 laggard, down over 8%, following Q3 net sales that were weaker than anticipated.
- Marathon Petroleum (MPC): Declined over 6% after reporting Q3 adjusted EPS below analyst expectations.
- Uber Technologies (UBER): Closed down over 4% after forecasting Q4 adjusted EBITDA with a midpoint below consensus.
Notable Gains
- Expeditors International of Washington (EXPD): Led S&P 500 gainers, up over 10%, after its Q3 revenue surpassed consensus estimates.
- Henry Schein (HSIC): Rose over 10% following Q3 net sales that exceeded expectations.
- Sanmina (SANM): Surged over 16% after reporting Q4 net sales above consensus.
- Yum! Brands (YUM): Gained over 7% after its Q3 adjusted EPS beat estimates.
- Waters Corp (WAT): Increased over 6% after reporting Q3 adjusted EPS above expectations and raising its full-year EPS forecast.
- Fabrinet (FN): Added over 4% after its Q1 revenue exceeded consensus.
- Whitestone REIT (WSR): Climbed over 4% on reports of a renewed acquisition approach.
- Global Payments (GPN): Rose over 4% after its Q3 adjusted net revenue narrowly surpassed consensus.
- Marriott International (MAR): Led Nasdaq 100 gainers, up over 3%, following a Q3 adjusted EPS report that exceeded analyst expectations.
Expert Summary
Tuesday saw a broad market decline driven by valuation concerns and warnings from Wall Street banks, impacting technology and semiconductor stocks particularly hard. Investors are closely monitoring upcoming economic data, geopolitical events, and potential Federal Reserve policy adjustments. While some individual stocks showed positive movement on earnings, the overall sentiment leaned cautious.