The S&P 500 was set for its longest losing streak since August, as a six-month rally shows signs of cracking following a $1.2tn selloff in cryptocurrencies and fears around high artificial intelligence valuations. Futures tracking the S&P 500 were down 0.5% in New York after earlier dropping as much as 0.8%, signalling some support from dip buyers. The benchmark is still on course for a fourth day of declines as investors reconsider their optimistic expectations for Federal Reserve interest-rate cuts.
Technology-heavy Nasdaq 100 futures also slipped 0.6%. Asian and European stock indexes fell, while Bitcoin briefly dropped below $90,000 for the first time in seven months. Meanwhile, a Bank of America Corp survey showed that fund managers’ cash holdings have fallen to low levels that have triggered a sell signal in the past. “AI remains a key growth driver, but concerns over potential earnings disappointments and valuation pressures persist,” Ulrich Urbahn, head of multi-asset strategy and research at Berenberg.
“Stocks face a delicate balance between positive AI momentum and macroeconomic caution as the year closes. We remain cautiously optimistic though, given likely strong buyback and flow support over coming weeks.” US stocks have come under pressure this month as investors worried the AI-led rally has run too hot. The S&P 500 is trading at about 22 times forward earnings, above its 10-year average of 19.
Concerns are also rising about the economic impact of the longest US government shutdown. Cryptocurrencies have slumped, with many smaller coins nursing losses in excess of 50% for this year. Digital tokens have lost a combined $1.2tn of market value since Bitcoin peaked in October, figures from CoinGecko show.
Investors have so far been keen to buy the dip given underlying optimism about US economic growth. On Friday, Nasdaq 100 futures fell as much as 1.9% before erasing all the losses. The unusual comeback was testament to a market that is both still keen on risk taking, while prone to short-term vulnerability. It showed that there is still some dip-buying fuel left in the tank. “We tend to treat market retrenchments as a buying opportunity,” said Marija Veitmane, head of equity research at State Street Global Markets.
“The economy is strong enough to support robust earnings growth and yet weak enough to warrant rate cuts.” Bloomberg’s momentum monitor seems now in short-term oversold territory for the first time in months as the overall market momentum in thematics has turned fully negative. While equity markets are wobbling, investment flows have been “strangely constructive, albeit defensively skewed,” notes Goldman Sachs Group Inc partner Rich Privorotsky. Still, there’s higher demand for bearish bets on technology stocks, suggesting faltering confidence in a sustainable rally.
Heavy spending on AI is also raising worries about companies’ capacity to finance such bills. Credit spreads for Oracle Corp have soared to the highest in nearly three years. Fund managers’ average cash holdings have fallen to 3.7%, something that has only occurred 20 times since 2002. Stocks fell and Treasuries outperformed in the following one to three months each time it happened, BofA strategists said in a note.
The survey also showed that for the first time in 20 years, investors said companies are overinvesting. The S&P 500 is now about 3% below its October peak, and on Monday, closed below its 50-day moving average for the first time since April. Market breadth has also weakened, with only 54% of S&P 500 constituents trading above their 200-day moving average, according to data compiled by Bloomberg. All eyes are now on AI bellwether Nvidia Corp’s quarterly earnings report. Meanwhile, swaps traders have pared bets on the possibility of a Fed rate cut in December.
For Matt Britzman, senior equity analyst at Hargreaves Lansdown, the longer-term outlook for stocks remains intact. “Pullbacks are never fun but are often healthy, especially in a market that’s showing signs of frothiness,” he said. Here’s what other market participants are saying about the outlook for US stocks:Homin Lee, a senior macro strategist at Lombard Odier “We believe that the nervousness will persist until the September employment report provides greater clarity.
At the current juncture, a soft US labour market data or a large beat in Nvidia earnings could help.”Mary-Sol Michel, a director a Swiss Life Gestion Privée in Paris “We were expecting a drawback to occur but a bit earlier earlier than this. We had therefore already cut some positions, notably on ASML and Alphabet.
The selling isn’t usual in terms of seasonality as typically at this time of the year people are expecting a year-end rally. We’re staying invested in tech, but we decided to take profits to secure our performance this year. There’s a lot of nervousness in the tech segment.”Eric Bleines, a fund manager at SwissLife Gestion Privée “The question is whether the selloff will continue after Nvidia’s results: This will make the difference between the market just taking a breather or going for a correction.
”Joachim Klement, a strategist at Panmure Liberum “Stock markets in the US and UK are still underpinned by solid fundamentals and in the US, weaker jobs data for September could revive the bets for a December rate cut by the Fed. US stocks will be supported by Fed rate cuts, though these will benefit US value stocks more than the expensive tech sector.”
Technology-heavy Nasdaq 100 futures also slipped 0.6%. Asian and European stock indexes fell, while Bitcoin briefly dropped below $90,000 for the first time in seven months. Meanwhile, a Bank of America Corp survey showed that fund managers’ cash holdings have fallen to low levels that have triggered a sell signal in the past. “AI remains a key growth driver, but concerns over potential earnings disappointments and valuation pressures persist,” Ulrich Urbahn, head of multi-asset strategy and research at Berenberg.
“Stocks face a delicate balance between positive AI momentum and macroeconomic caution as the year closes. We remain cautiously optimistic though, given likely strong buyback and flow support over coming weeks.” US stocks have come under pressure this month as investors worried the AI-led rally has run too hot. The S&P 500 is trading at about 22 times forward earnings, above its 10-year average of 19.
Concerns are also rising about the economic impact of the longest US government shutdown. Cryptocurrencies have slumped, with many smaller coins nursing losses in excess of 50% for this year. Digital tokens have lost a combined $1.2tn of market value since Bitcoin peaked in October, figures from CoinGecko show.
Investors have so far been keen to buy the dip given underlying optimism about US economic growth. On Friday, Nasdaq 100 futures fell as much as 1.9% before erasing all the losses. The unusual comeback was testament to a market that is both still keen on risk taking, while prone to short-term vulnerability. It showed that there is still some dip-buying fuel left in the tank. “We tend to treat market retrenchments as a buying opportunity,” said Marija Veitmane, head of equity research at State Street Global Markets.
“The economy is strong enough to support robust earnings growth and yet weak enough to warrant rate cuts.” Bloomberg’s momentum monitor seems now in short-term oversold territory for the first time in months as the overall market momentum in thematics has turned fully negative. While equity markets are wobbling, investment flows have been “strangely constructive, albeit defensively skewed,” notes Goldman Sachs Group Inc partner Rich Privorotsky. Still, there’s higher demand for bearish bets on technology stocks, suggesting faltering confidence in a sustainable rally.
Heavy spending on AI is also raising worries about companies’ capacity to finance such bills. Credit spreads for Oracle Corp have soared to the highest in nearly three years. Fund managers’ average cash holdings have fallen to 3.7%, something that has only occurred 20 times since 2002. Stocks fell and Treasuries outperformed in the following one to three months each time it happened, BofA strategists said in a note.
The survey also showed that for the first time in 20 years, investors said companies are overinvesting. The S&P 500 is now about 3% below its October peak, and on Monday, closed below its 50-day moving average for the first time since April. Market breadth has also weakened, with only 54% of S&P 500 constituents trading above their 200-day moving average, according to data compiled by Bloomberg. All eyes are now on AI bellwether Nvidia Corp’s quarterly earnings report. Meanwhile, swaps traders have pared bets on the possibility of a Fed rate cut in December.
For Matt Britzman, senior equity analyst at Hargreaves Lansdown, the longer-term outlook for stocks remains intact. “Pullbacks are never fun but are often healthy, especially in a market that’s showing signs of frothiness,” he said. Here’s what other market participants are saying about the outlook for US stocks:Homin Lee, a senior macro strategist at Lombard Odier “We believe that the nervousness will persist until the September employment report provides greater clarity.
At the current juncture, a soft US labour market data or a large beat in Nvidia earnings could help.”Mary-Sol Michel, a director a Swiss Life Gestion Privée in Paris “We were expecting a drawback to occur but a bit earlier earlier than this. We had therefore already cut some positions, notably on ASML and Alphabet.
The selling isn’t usual in terms of seasonality as typically at this time of the year people are expecting a year-end rally. We’re staying invested in tech, but we decided to take profits to secure our performance this year. There’s a lot of nervousness in the tech segment.”Eric Bleines, a fund manager at SwissLife Gestion Privée “The question is whether the selloff will continue after Nvidia’s results: This will make the difference between the market just taking a breather or going for a correction.
”Joachim Klement, a strategist at Panmure Liberum “Stock markets in the US and UK are still underpinned by solid fundamentals and in the US, weaker jobs data for September could revive the bets for a December rate cut by the Fed. US stocks will be supported by Fed rate cuts, though these will benefit US value stocks more than the expensive tech sector.”