U.S. stock markets closed sharply lower as valuation concerns related to artificial intelligence (AI) stocks resurfaced. The prevailing government shutdown has also dented the confidence of market participants in risky assets like equities in the absence of government data. Weak labor market data aggravated the situation. All three major stock indexes ended in negative territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.8% or 398.70 points to close at 46,912.30. Notably, 20 components of the 30-stock index ended in negative territory, while 10 finished in positive territory. The major loser of the blue-chip index was Salesforce Inc. CRM. The stock price of the leading developer of CRM software was down 5.3%. Salesforce currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The tech-heavy Nasdaq Composite finished at 23,053.99, tumbling 1.9% or 445.81 points due to the weak performance of AI infrastructure giants.
The S&P 500 slid 1.1% to finish at 6,720.32. Out of the 11 broad sectors of the broad-market index, nine ended in negative territory, while two were in positive territory. The Consumer Discretionary Select Sector SPDR (XLY) and the Technology Select Sector SPDR (XLK) slipped 2.3% and 2%, respectively. On the other hand, the Energy Select Sector SPDR (XLE) advanced 1%.
The fear gauge, the CBOE Volatility Index (VIX) was up 8.3% to 19.50. A total of 20.77 billion shares were traded on Thursday, lower than the last 20-session average of 20.99 billion. Decliners outnumbered advancers on the NYSE by a 1.97-to-1 ratio. On the Nasdaq, a 2.69-to-1 ratio favored declining issues.
Valuation Concerns About AI Space
Investors booked profits on AI infrastructure developers due to concerns about the highly overstretched valuation of this space. Last month, JPMorgan Chase’s CEO Jamie Dimon warned about a significant stock market correction within the next six months to two years.
Major investment banks also warned about the same. Goldman Sachs’ CEO David Solomon said that it’s “likely there’ll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months.” Morgan Stanley CEO Ted Pick said: “We should also welcome the possibility that there would be drawdowns, 10 to 15% drawdowns that are not driven by some sort of macro cliff effect.”
Wall Street’s astonishing bull run of the past three years was predominantly driven by the enormous growth of stock prices of AI infrastructure developers and application and software developers. A large section of financial researchers and economists has warned that the AI boom may face severe hurdles in the near future.
Government Shutdown Continues
The latest U.S. government shutdown has been continuing for the last 38 days. This is the longest government shutdown in the nation’s history. The Congress failed to reach an agreement between the Republicans and Democrats to provide a stopgap funding for the government.
As a result, policymakers, investors and traders are suffering from a lack of key economic data. The Fed officials are suffering the most in the absence of vital economic data. The shutdown resulted in a large number of government employees remaining furloughed or working essential jobs without pay.
Economic Data
On Nov. 5, outplacement firm Challenger, Gray & Christmas reported that U.S. job cuts for the month of October totaled 153,074, soaring183% sequentially and 175% year over year. This marked the highest-level job cuts for any October since 2003.
Moreover, the report revealed that 2025 is the worst year for announced layoffs since 2009. In October, the highest number of job cuts happened in the technology sector as a result of restructuring due to AI integration. This sector shed 33,281 jobs in the last month.
Additionally, workforce analytics company Revelio Labs reported that the U.S. economy retrenched 9,100 jobs in October, with the government sector accounting for the bulk of the decline.
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Salesforce Inc. (CRM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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