U.S. Stocks Plummet as Big Banks Warn of Market Bubble
The U.S. stock market closed sharply lower on Tuesday, with all three major indexes experiencing significant losses after the CEOs of Morgan Stanley and Goldman Sachs expressed concerns over stretched valuations and a potential market bubble. The S&P 500 suffered its biggest one-day percentage drop since October 10, while the Nasdaq Composite and Dow Jones Industrial Average also saw substantial declines.
The warning signs were clear: the artificial intelligence boom, which had driven the S&P 500 to a series of all-time highs, was beginning to show signs of strain. Tech shares weighed particularly heavily on the Nasdaq, with six of the "Magnificent Seven" AI-related momentum stocks losing ground on the day. The Philadelphia SE Semiconductor index dipped 4.0%, reflecting concerns over the sector’s valuation.
Jamie Dimon, CEO of JPMorgan Chase, had warned last month of the heightened risk of a significant stock market correction within the next six months to two years, citing factors including geopolitical tensions and stretched valuations. While some investors were sanguine about the outlook, others sounded a more cautionary note. "Investors seem a little more worried about valuation than they have in a while," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
The government shutdown, which was nearing its record length, had led to concerns about the lack of reliable data and economic indicators. Federal Reserve officials were being parsed for clues on how the central bank would forge its monetary policy in the absence of crucial information. Meanwhile, local elections in New York and other states would be closely tracked for their potential impact on market sentiment.
Stock Performance
The Dow Jones Industrial Average fell 251.44 points, or 0.53%, to 47,085.24, while the S&P 500 lost 80.42 points, or 1.17%, to 6,771.55 and the Nasdaq Composite declined 486.09 points, or 2.04%, to 23,348.64. Tech shares led the decline, falling 2.3% among the 11 major sectors of the S&P 500.
Some notable stocks saw significant losses, despite some mixed news: Palantir Technologies slid 8.0% despite its better-than-expected fourth-quarter revenue forecast; Uber fell 5.1% in the wake of its quarterly profit miss; and Spotify dipped 2.3% after its quarterly results were announced. However, Henry Schein advanced 10.8% after hiking its annual profit forecast.
Market Volatility
Declining issues outnumbered advancers by a 2.45-to-1 ratio on the NYSE, where there were 68 new highs and 178 new lows. On the Nasdaq, 1134 stocks rose and 3578 fell as declining issues outnumbered advancers by a 3.16-to-1 ratio. The S&P 500 posted 13 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 54 new highs and 260 new lows.
The high level of market volatility was reflected in volume, with 19.82 billion shares traded on U.S. exchanges compared to the 21.04 billion average for the full session over the last 20 trading days.
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