Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed lower for the second consecutive day as fears of an AI bubble and extended valuations continue to run rampant.
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Bank of America’s monthly global fund managers survey showed that 45% of investors believe an AI bubble is the biggest tail risk to the market, while 53% of investors believe that AI stocks are already in a bubble. A tail risk is a low-probability event that can have a significant impact on the market if it occurs. The survey also showed an average cash allocation of 3.7%, triggering a sell signal that has occurred only 20 times since 2022. The signal has historically resulted in stocks falling and underperforming Treasuries over the next one to three months, wrote strategist Michael Hartnett.
Furthermore, Alphabet (GOOGL) CEO Sundar Pichai issued a bleak warning on the state of AI in an interview with BBC. When asked if Google would be immune from the AI bubble popping, he said, “I think no company is going to be immune, including us.” Pichai added that the AI boom has both “rational” and “irrational” traits, similar to the rise of the internet ahead of the Dotcom Bubble.
Meanwhile, President Trump said that he thinks he already knows his pick to succeed Fed Chair Jerome Powell next year. “I’d love to get the guy currently in there out right now, but people are holding me back,” Trump said in the Oval Office. White House National Economic Council Director Kevin Hassett is seen as the likely candidate with 48% odds on prediction platform Polymarket, followed by Fed Governor Chris Waller and BlackRock’s (BLK) CIO of Fixed Income, Rick Rieder.
In other news, ADP reported that private employers shed an average of 2,500 jobs per week for the four weeks ended November 1. That marked an improvement from the average weekly loss of 14,250 jobs for the four weeks ended October 25. ADP said that the data is preliminary and could change as additional information comes in.
Finally, initial jobless claims for the week ended October 18 were 232,000, while continuing jobless claims were 1.957 million. A spokesperson from the Department of Labor said that it had accidentally published the data too early and that the complete report would be available on Thursday.
The S&P 500 (SPX) closed with a 0.83% loss, while the Nasdaq 100 (NDX) fell by 1.20%.
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