US Stocks Plummet Amid Renewed Tech Sector Fears
US stocks experienced significant declines on Thursday, driven by weak private-sector job data that renewed fears in the tech sector. Following a robust rally fueled by optimism around artificial intelligence, the tech-heavy Nasdaq Composite dropped 2% by midday in New York, while the blue-chip S&P 500 index fell 1.2%.
Private-Sector Job Cuts Influence Market Sentiment
The downturn was influenced by alarming figures from Challenger, Gray & Christmas, which reported that job cuts in October were the highest for the month since 2003. Since the start of the year, US employers have announced over 1 million job cuts, a 67% increase compared to the same period in 2024.
- Job Cuts in October: Worst since 2003
- Total Job Cuts in 2023: Over 1 million announced
- Year-over-Year Increase: 67% compared to 2024
Market Volatility Driven by Elevated Valuations
Investor sentiment has become increasingly wary following a government shutdown that curtailed many official economic data releases. This cautious approach coincides with signs of a cooling labor market, which has previously prompted the Federal Reserve to implement rate cuts.
Marija Veitmane, head of equity research at State Street Markets, noted that the current market volatility feels driven more by sentiment than by actual market fundamentals. She pointed out the overcrowded nature of tech stocks and their high valuations, stating that investors were actively seeking excuses to sell.
Concerns About Tech Stock Valuations
The tech sector has been under scrutiny for its inflated valuations. Arun Sai, a senior strategist at Pictet Asset Management, expressed concern that stretched valuations could lead to market corrections. He highlighted the risk of “flying blind” with current growth and inflation fears.
European markets mirrored the decline, with the Stoxx Europe 600 closing down 0.7% and Germany’s Dax index falling 1.3%. Neil Birrell from Premier Miton remarked on the fragile state of the market and how investors are heavily positioned in similar trades.
Safe Haven Assets Gain Amid Market Turbulence
As US equities faltered, investors shifted towards safe haven assets, resulting in a drop in the US 10-year Treasury yield to 4.09%, reflecting an inverse relationship between bond yields and prices. Meanwhile, the US dollar weakened, decreasing by 0.4% against a basket of currencies.
Fund managers regard a pullback in stock prices as an anticipated correction after a substantial market rise. The Nasdaq’s forward earnings ratio stood at around 29 on Thursday, surpassing the historical average of 25 over the past decade, according to FactSet data.
Guy Miller, chief market strategist at Zurich, suggested that this moment of market correction could be viewed as a necessary pause in an established uptrend, emphasizing that even in bullish markets, a 10% correction is typical and often refreshing for long-term growth.
