Market Summary
The S&P 500 Index ($SPX) and its exchange-traded fund (SPY) dropped by -1.17% on Tuesday, while the Dow Jones Industrial Average ($DOWI) (DIA) fell -0.53%. The Nasdaq 100 Index ($IUXX) (QQQ) saw a larger decline of -2.07%. E-mini futures for December also showed downward trends, with S&P futures falling -1.17% and Nasdaq futures down -2.08%.
Market Performance Insights
U.S. stock indexes retreated on Tuesday, with the S&P 500 hitting a 1.5-week low, while the Dow and Nasdaq reached 1-week lows. Palantir Technologies, a key player in AI infrastructure, dropped over -7% despite announcing better-than-expected Q3 sales. The price-to-sales ratio for Palantir increased to 85, the highest in the S&P 500, raising worries about high valuations, which led to selling pressure on the stock. Additionally, weak performances from major tech stocks and semiconductor companies further impacted market sentiment.
Valuation Concerns and Market Sentiment
Concerns about valuations were evident, amplified by warnings from two major Wall Street banks. At a financial summit hosted by the Hong Kong Monetary Authority, Morgan Stanley and Goldman Sachs indicated that equity markets might face a correction of over 10% within the next 12 to 24 months. They highlighted that the S&P 500 had surged by more than +35% since April, reaching record highs.
Bond Market Movements
On a positive note for stocks, bond yields declined, with the 10-year Treasury note yield dropping by -2 basis points to 4.09%. This retreat in yields provided some support amidst the stock declines. October vehicle sales in the U.S. fell to 15.32 million, below the anticipated 15.50 million, marking the slowest pace in 14 months.
Regulatory Developments Ahead
Looking forward, the markets are anticipating oral arguments at the Supreme Court concerning the legality of President Trump’s reciprocal tariffs. These arguments may offer insights into the potential ruling, expected by late 2023 or early 2026. Lower courts have already deemed the tariffs illegal, based on claims of emergency authority in the 1977 International Emergency Economic Powers Act. A ruling against the tariffs could force the U.S. government to refund more than $80 billion collected under these tariffs.
Corporate Earnings Outlook
The Q3 earnings season is ongoing, with 136 S&P 500 companies set to report this week. According to Bloomberg Intelligence, around 80% of reported companies have exceeded expectations, signaling a potential strong quarter since 2021. Nevertheless, the profits for Q3 are projected to rise by only +7.2% year-over-year, the slowest growth in two years.
International Market Performance
International markets also faced losses on Tuesday. The Euro Stoxx 50 dropped to a two-week low, closing down -0.34%. The Shanghai Composite in China fell -0.41%, while Japan’s Nikkei Stock 225 declined from record highs, closing down -1.74%. These overseas pressures contributed to negative sentiment across global markets.
