Good news bears were on the loose today. It was a risk-off day in financial markets despite strong earnings and economic news. Nvidia reported better-than-expected Q3 results yesterday after the market closed. This morning, we learned that payroll employment rose more than expected in September and that initial unemployment claims remained subdued last week. Nevertheless, it was a bad day for stock investors.
The stock market pullback that we expected at the start of this month may be turning into an outright correction, especially for the Nasdaq. The S&P 500 is down 5.1% from its October 29 record high. The Nasdaq is down 7.8% over this period (chart). Both fell below their 50-day moving averages today. We doubt that either will fall to their 200-day moving averages, currently at 6,157.70 and 20,158.34.
Let's review why sentiment has turned so bearish so quickly before we answer the question in the title:
(1) AI bubble Fears. Weighing on the stock market is widespread uncertainty about the impact of AI infrastructure spending on the earnings of the AI data center corporations. Nvidia's strong report didn't do much to resolve the known unknowns about AI spending. Also unnerving investors are recent reports that Softbank and Thiel Macro sold all their Nvidia shares. Michael Burry (the "Big Short") continues to raise doubts about the accounting practices of the major AI companies.
