Nasdaq tanks 500 points, futures extend losses as AI valuations bite

US markets had a down day on Tuesday, led mainly by the tech stocks, which have also led the rally towards record highs.

The Dow Jones recovered marginally from the lows of the day to end 250 points lower, but the real underperformance came from the S&P 500 and the Nasdaq, which fell 1.2% and 2% respectively. The Nasdaq was down 500 points at close and also ended the session at the lowest point of the day. Futures on the Nasdaq are also down nearly 200 points in late-evening trade.

Leading the losses was Palantir, which reported an earnings beat, raised guidance, and yet the stock declined 8%. Concerns over valuations of certain stocks was evident in Palantir, as the stock trades at 200 times forward earnings, making it the most expensive trade on the S&P 500. The stretched valuation comes on the back of the stock gaining 175% so far year-to-date before Tuesday.

After days of hitting new records and even scaling $5 trillion in market cap, Nvidia shares fell 4% and hedge fund manager Michael Burry disclosed bearish bets on the stock, and its rival AMD.

The US Dollar index is back above the mark of 100, Cryptocurrencies declined led by Bitcoin, which fell 6%, while Gold futures remained below the mark of $4,000 an ounce.

“I still think the chase is on. I still think the large cap love affair is on," Liz Young Thomas of SoFi told CNBC. "And that’s probably not going to change over the longer term period. But today, we were looking for an excuse," she added, explaining the fall on Tuesday.

Concerns over the labor market continued as employment opportunities hit their lowest level in over four-and-a-half years, according to jobs site Indeed. The most recent JOLTS jobs report for August showed job openings at 7.23 million, almost the same as July but down 7% from the start of the year.

Later today, we'll have the ADP private payrolls data, which will be closely watched as the government shutdown now drags to the biggest on record. Stocks like Qualcomm, Arm, Novo Nordisk, McDonalds also report results today.