U.S. stocks retreated on Thursday as companies that have benefited from the artificial intelligence trade came under pressure yet again amid concern about their eye-watering valuations.
The Dow Jones Industrial Average slid 398.70 points, or 0.84%, to close at 46,912.30. The S&P 500 traded down by 1.12%, to settle at 6,720.32, while the Nasdaq Composite tumbled 1.9% to end at 23,053.99. The Nasdaq 100 was down more than 2% since last Friday's close and is on pace for its worst week since early April. The biggest downside impact came from Nvidia, Microsoft, Palantir Technologies, Broadcom and Advanced Micro Devices.
AI stocks have moved unevenly since the start of November, and that continued in Thursday's session. Qualcomm shed nearly 4% after the chipmaker posted better-than-expected quarterly results but said it may lose future business with Apple. AMD, a standout on Wednesday, lost 7%, while Palantir and Oracle declined nearly 7% and 3%, respectively. Shares of AI darling Nvidia and fellow "Magnificent Seven" name Meta Platforms sank as well.
"So much of this stuff from a valuation standpoint was so lofty and priced for perfection that we're seeing in the market a bit of a dichotomy between companies that are beating and raising versus those that maybe are beating on the top line but providing tepid guidance on the bottom line or from an operating profit standpoint," said Mike Mussio, president at FBB Capital Partners. "That's the difference between some of these companies on earnings being up double digits versus being down double digits, and there's not a lot of in-between."
Thursday's pullback was made worse by concerns about the state of the labor market, as October saw a significant number of layoff announcements. Job cuts in the month totaled more than 153,000, almost triple September's rate and 175% higher than the same period a year ago, according to Challenger, Gray & Christmas. That's the highest level recorded for the month of October in 22 years, in a year that's shaping up as the worst for layoffs since 2009.
That data suddenly paints a shaky picture of the U.S. economy, particularly in light of the lack of economic reports as a result of the ongoing U.S. government shutdown, now over a month old and the longest in history.
"We're starting to get dribs and drabs of the economic data ... that's not government related, and it's not super rosy," Mussio said, adding that "all that stuff is just setting up for some market weakness." That doesn't necessarily mean "this is the start of a major skid or anything," he continued. The investment manager believes that if the government reopens and data thereafter shows the consumer is "really not dead" as the holiday season unfolds, a typical year-end rally could result.
All three major U.S. indexes are firmly in negative territory week to date. As of Thursday's close, the 30-stock Dow is on pace for a 1.4% loss, while the S&P 500 has shed 1.8%. The tech-heavy Nasdaq is down by 2.8% this week.
Investors were also looking to Washington on Thursday, after the Supreme Court heard arguments for and against the Trump administration's tariff policy. In questioning Wednesday, the high court justices expressed some skepticism about the trade taxes' legality, which led many investors to expect a ruling against the tariffs.
