The major U.S. indexes took a breather today after notching record highs on Monday. The S&P 500 fell 0.38%, ending a seven-day winning streak. The Nasdaq dropped 0.67%, the Dow slipped 0.20%, and small-caps (Russell 2000) led to the downside, off 1.12%. A mix of concerns around AI hype, selective tech weakness, and caution ahead of earnings season contributed to the decline.
Sector & Stock Highlights
Underperformers:
Tech stocks took a hit, especially software, semiconductors, and hardware names. A report questioning Oracle’s profitability on Nvidia chip rentals added fuel to growing fears around the AI bubble.
Homebuilders, autos (like Ford), and apparel stocks lagged, with rate sensitivity and consumer headwinds top of mind.
Small caps and retail-investor favorites also sold off despite easing Treasury yields.
Outperformers:
Defensive sectors like consumer staples, hospitals, insurance, and telecom held up better.
Industrial metals and payments stocks also gained ground.
Notable winners:
Trilogy Metals (TMQ) soared 211% after a strategic investment from the U.S. government.
AMD rose again (+3.8%) following yesterday’s OpenAI deal.
Dell, Netflix, and IBM also posted gains on upbeat analyst commentary or news.
Macro & Policy Update
The NY Fed’s consumer survey showed a slight uptick in one-year inflation expectations (to 3.4%), though household optimism and job market expectations improved.
A wave of Fedspeak hit, but nothing game-changing. Minneapolis Fed’s Kashkari voiced concerns about stagflation and warned against cutting rates too quickly.
Treasury yields fell across the curve after a solid 3-year note auction, while the U.S. dollar strengthened and gold closed above $4,000/oz for the first time.
The government shutdown entered Day 7 with little progress, although markets continue to view it as background noise for now.
AI Bubble Concerns Back in Focus
AI optimism is still driving long-term enthusiasm, but today the narrative cooled. Reports revealed that Oracle’s chip rental business has razor-thin margins, prompting concerns that not all AI investments are immediately profitable. This, combined with fears of circular spending in the AI ecosystem (AI labs, chipmakers, and cloud providers all investing in each other), is stoking chatter about a potential AI bubble.
Here’s Our Take
Today’s dip looks more like a healthy pause after a strong run than a signal of deeper trouble. The market is digesting rapid AI gains, mixed macro data, and awaiting Q3 earnings season for fresh direction. While AI headlines continue to drive sentiment, expect more scrutiny over profitability and ROI in the space. Meanwhile, defensive sectors are holding firm, and the bond market is lending support with easing yields. Unless macro or earnings data deteriorate meaningfully, the broader trend still favors higher ground.
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