[New York Stock Exchange] Investor Sentiment Plummets on AI Overvaluation Concerns and Massive Layoffs... All Three Major Indices Fall

All Three Major U.S. Indices Close Lower
Palantir Plunges 6.8%, Bitcoin Down 3%
Investor Sentiment Hit by U.S. Employment Uncertainty

The three major indices on the New York Stock Exchange all closed lower. Investor sentiment sharply deteriorated as concerns over an 'artificial intelligence (AI) bubble' continued to weigh on the market, and news emerged that U.S. companies had initiated the largest round of layoffs in 22 years. The correction in technology stocks is now spreading to risk assets across the board, including cryptocurrencies and small- and mid-cap stocks.

AP Yonhap News

On November 6 (local time), at the New York Stock Exchange, the blue-chip-focused Dow Jones Industrial Average fell by 398.70 points (0.84%) to close at 46,912.30. The large-cap S&P 500 Index dropped by 75.97 points (1.12%) to 6,720.32, while the tech-heavy Nasdaq Index plummeted by 445.80 points (1.90%) to 23,053.99. As of this date, the Dow is down 1.4% for the week, the S&P 500 is down 1.8%, and the Nasdaq is down 2.8%.

The main factor was renewed concerns about overvaluation of AI-related stocks. Business Insider analyzed, "There are clear signs in recent weeks that the AI investment fever is cooling," adding, "After years of surging prices, the perception that 'things have gone too far, too fast' is spreading."

On this day, Qualcomm reported earnings that exceeded market expectations, but fell nearly 4% on concerns about a possible termination of its business with Apple. AMD, which had shown strength the previous day, plunged 7%, and Oracle dropped 3%. AI bellwethers Nvidia and Meta Platforms also declined.

Mike Muscio, CEO of FBB Capital Partners, explained, "The valuations of AI-related stocks are excessively high, with share prices essentially based on the assumption of 'perfect results.' Even if revenue holds up, if operating profit forecasts are weak, we are seeing a 'polarization phenomenon' where share prices plunge."

Palantir, which triggered the AI valuation debate, also plunged 6.8% on this day. On a weekly basis, it has fallen by more than 12%. Palantir's third-quarter revenue was $1.18 billion, exceeding the market expectation of $1.09 billion, but its share price still crashed by 8% immediately after the earnings announcement. The news that Michael Burry, the investor famous for "The Big Short," had taken short positions on both Palantir and Nvidia contributed to the negative sentiment. Breaking his two-year silence, Burry warned on X (formerly Twitter), "Sometimes we see bubbles. Sometimes we can respond. But sometimes, the only way to win is not to play the game at all."

Some experts warned of the possibility of further corrections. David Solomon, Chairman and CEO of Goldman Sachs, predicted, "There is a high likelihood that the stock market will experience a 10-20% correction within the next 12 to 24 months." Ted Pick, CEO of Morgan Stanley, also said, "A 10-15% correction is a natural process and can occur even without a macroeconomic shock."

Cyclical stocks and other risk assets also struggled. Bitcoin, which had surged following President Trump's election last year, fell by nearly 3%, and the small- and mid-cap-focused Russell 2000 Index dropped 1.6%.

In contrast, healthcare stocks performed well. Merck and Pfizer saw slight gains, and Eli Lilly, which reached an agreement with the Trump administration to lower prices for obesity treatments, rose by over 1%.

Concerns about a weakening labor market further fueled the stock market's decline. Challenger, Gray & Christmas, a U.S. human resources consulting firm, announced that 153,074 jobs were eliminated in the United States in October. This is an increase of 183% compared to September (54,064 jobs). For October, this is the highest figure since 2003, and in terms of monthly layoffs, the largest since the fourth quarter of 2008. The main reasons cited were cost-cutting and the expanded adoption of AI.

CNBC analyzed, "With official economic indicators delayed due to the U.S. federal government shutdown, this employment data shows that the U.S. economy is faltering." Currently, aside from private employment indicators, there is little data available to gauge the state of the economy.

CEO Muscio said, "Even looking only at private statistics, not government releases, the economic situation does not look very bright," adding, "These factors are likely to trigger short-term market weakness." However, he added, "If the government returns to normal soon and upcoming consumer-related indicators are not poor, a typical year-end rally is possible."

The U.S. federal government shutdown reached its 37th day, setting a new record for the longest in history. The Federal Aviation Administration (FAA) ordered a 10% reduction in flight operations at 40 airports due to staff shortages. As a result, airline stocks fell across the board, with American Airlines dropping 2%.