After artificial intelligence (AI) drove stocks to new highs, the market is beginning to show signs of fatigue. This comes as no surprise: traders are monitoring the government shutdown entering its second week, overseas political turmoil, and the impact of recent tariff policies. Even the technology sector may face pressure, with Citi strategists warning that investors might choose to take profits and exit.
As of press time, Dow futures rose 0.11%, S&P 500 futures fell 0.01%, and Nasdaq futures declined 0.02%.
The AI boom and optimistic earnings expectations have driven consecutive stock gains, but these driving forces may be approaching their limits.
Citi's Montagu stated: "The risk of profit-taking in global markets has risen rapidly, with the Nasdaq index facing particularly prominent risks, which could hinder further stock market advances."
Additionally, AI sector valuations are approaching extreme levels: the Philadelphia Semiconductor Index (SOX Index) forward price-to-earnings ratio is nearly 3 standard deviations above its 15-year average. Nevertheless, positive news continues to emerge from the technology sector, with OpenAI appearing to have a "Midas touch" - Bloomberg Opinion columnist Matt Levine analyzed how the ChatGPT parent company has become an industry "kingmaker" through partnership announcements.
Trump expressed willingness to negotiate with Democrats on healthcare subsidies, a move that could open a breakthrough for resolving the government shutdown. Carlyle Group is releasing its own estimates of U.S. economic data to fill official data gaps, with the firm projecting that the U.S. added only 17,000 jobs in September, one of the lowest levels since the U.S. economy recovered from recession in 2020.
Furthermore, Citadel's Ken Griffin noted that investors are beginning to view gold as a safer asset than the U.S. dollar, with the billionaire investor calling this trend "very concerning."
Morgan Stanley warns: Sharp inflation decline poses the greatest threat to U.S. stocks.
Morgan Stanley Chief U.S. Equity Strategist and Chief Investment Officer Michael Wilson pointed out that if nominal GDP and earnings growth accelerate due to rising inflation, stock valuations could receive support.
He analyzed that since the new economic cycle began in April, market P/E expansion has benefited from three factors: the launch of a new cycle, expectations for future earnings recovery, and the supportive effect of higher inflation environments on equity risk premiums.
Wilson particularly emphasized that the S&P 500's ratio to gold - a reliable indicator of long-term real returns - is currently nearly 70% below its peak from 25 years ago, directly reflecting that stock prices in 1999-2000 were far higher than current levels.
Focus Stocks
Bitcoin mining concept stocks generally rose in pre-market trading, with Iren and Bitfarms up over 11%, Hive Digital Technologies rising nearly 7%, and TeraWulf gaining over 3%.
IBM surged over 8% pre-market after reaching a partnership with Anthropic.
AMD continued to rise nearly 2% pre-market following a 6-gigawatt computing power agreement with OpenAI.
Trilogy Metals soared over 195% pre-market after the U.S. government announced it would acquire a 10% stake in the company.
Intercontinental Exchange rose over 4% pre-market amid reports of discussions to invest $2 billion in Polymarket.
AppLovin continued to fall over 2.5% pre-market amid reports that the U.S. SEC is investigating its data collection practices.
IREN once rose over 11% pre-market following news of securing new multi-year AI cloud contracts.