US stocks slide as tech valuations, labour market draw fresh concern

The rally in US equities stalled Tuesday morning as large-cap AI-related stocks fell with too-lofty valuations in focus and traders parsed data showing more weakening in the labor market.

The S&P 500 Index opened 0.2% lower, led by declines in the tech and communications services sectors. Nvidia Corp. was the biggest drag on the index on Tuesday morning, sliding after SoftBank Group Corp. sold its stake in the chipmaker for $5.83 billion to fund other AI investments. The tech-heavy Nasdaq 100 Index declined 0.4%, while the Dow Jones Industrial Average was up 0.2%.

The move lower has stocks poised to snap a two-session winning streak that could prove to be “just a head fake,” according to Matt Maley, chief market strategist at Miller Tabak + Co. “There are still reasons to think that the stock market could finally see a near-term decline of more than 3%,” he said. The market hasn’t seen such a drop since April.

Elsewhere in the tech sector, CoreWeave Inc. shares dropped after trimming its annual revenue forecast, prompting a downgrade to neutral from overweight at JPMorgan.

The declines come as concerns about tech and AI-related valuations mount. “The market remains expensive on a fundamental basis even when considering AI enthusiasm in its most potent state,” wrote Tom Essaye, founder and president of the Sevens Report.

Investors have added to bearish bets on the stock market over the last week, according to data from Citi Research, including $3.75 billion in net new short bets on the Nasdaq. “New shorts have dominated flows across US equities,” analysts led by Chris Montagu wrote in a Tuesday note, adding the trend has been “accelerating through the past week.”

Traders also got more data on the weakening US labor market, as ADP showed US private payrolls fell by an average of 11,250 positions per week in the four weeks to Oct. 25. Small business optimism in the US dropped to a six-month low in October on deteriorating earnings and concerns about the economic outlook.

Still, strategists see the potential for gains with the end of the US government shutdown. JPMorgan’s Market Intelligence team said the reopening could release more liquidity into the market.