5 Things to Know Before the Stock Market Opens Wednesday

Here are five key things investors need to know to start the trading day:

Stocks experienced a sell-off yesterday, largely fueled by investor anxieties surrounding the valuations of companies operating within the artificial intelligence sector. Leading the decline was Palantir, whose shares plummeted 8% during the session despite reporting robust earnings figures on Monday. This raises concerns about whether the market’s enthusiasm for AI has outpaced the underlying fundamentals for some players.

Here’s what to know:

• The valuation concerns are not new for Palantir, which currently has a forward price-to-earnings ratio of 254. For comparison, Nvidia has a forward price-to-earnings ratio of 35. This stark difference highlights the premium investors are willing to pay for projected growth in the AI space, but also suggests Palantir faces heightened scrutiny. Is its growth trajectory sustainable at these levels?
• “Big Short” investor Michael Burry also revealed a short position in the company, a move Palantir CEO Alex Karp called “bats— crazy” and “market manipulation.” This high-profile bet against Palantir is significant, as Burry’s past successes give his market moves considerable weight. The disagreement between Karp and Burry underscores the diverging perspectives on Palantir’s long-term viability.
• “The two companies he’s shorting are the ones making all the money, which is super weird,” Karp told CNBC’s “Squawk Box” yesterday. Burry also bet against Nvidia, a filing showed. This raises questions about Burry’s rationale. Is he betting on a broader correction in the tech sector, or does he see specific vulnerabilities in the business models of Palantir and Nvidia?
• Palantir wasn’t the only big tech stock to suffer in Tuesday’s session. Every member of the Magnificent Seven except for Apple closed in the red, suggesting a broader market correction impacting even the most established players. This could indicate a rotation out of tech stocks, driven by rising interest rates or concerns about slowing economic growth.
• Advanced Micro Devices dropped nearly 4% in extended trading after reporting third-quarter results last night. The chipmaker beat analysts’ earnings and revenue expectations, but its margin guidance was only inline with estimates. While AMD’s core business remains strong, the market’s reaction suggests investors are demanding more than just revenue growth; profitability and efficiency are now key.
• Super Micro shares also sank as much as 10% after the bell. The server maker missed Wall Street’s expectations on both the top and bottom lines. This setback highlights the challenges for hardware providers supporting the AI boom. While demand is high, competition is fierce, and execution is critical for maintaining profitability.

Democrats enjoyed considerable success in yesterday’s elections, securing key victories in New York, New Jersey, and Virginia. This raises questions about the political landscape heading into the midterm elections and the potential impact on market sentiment.

Self-described democratic socialist Zohran Mamdani will become the next mayor of New York City, NBC News projects, defeating former New York Gov. Andrew Cuomo. More than 2 million New Yorkers turned out to vote in the election, the most since 1969, according to the city’s Board of Elections. His victory suggests a shift in voter preferences towards progressive policies, which could impact local business regulations and investment strategies.

In New Jersey, Democrat Mikie Sherrill is projected to become the state’s next governor. The closely watched race against Trump-endorsed Republican Jack Ciattarelli was seen as a bellwether for the GOP, which made inroads in the state in 2024. Her projected win indicates a potential pushback against the Republican agenda, which could affect state-level economic policies and investment climates.

NBC News also projects Democrat Abigail Spanberger will become the first female governor of Virginia and Democratic nominee Jay Jones will win the state’s attorney general race. Unlike Mamdani, Sherril and Spanberger, Jones was not seen as the betting favorite going into yesterday’s election. This broader victory for Democrats in Virginia could signal a shift in the state’s political alignment and influence future policy decisions.

McDonald’s reported third-quarter earnings this morning, falling slightly short of Wall Street’s expectations on both revenue and earnings per share. The fast-food giant posted $7.08 billion in revenue during the period, a 3% increase from a year ago, which was narrowly below the $7.1 billion consensus estimate. This miss highlights the challenges facing even established brands in the current economic climate.

Despite the earnings shortfall, the company’s shares rose modestly in pre-market trading. This suggests investors are focusing on other positive aspects of the report. McDonald’s reported that same-store sales grew 3.6% globally and 2.4% in the U.S., signaling that the company’s strategic initiatives are driving customer traffic and spending. CEO Chris Kempczinski stated that the results reflected their ability to achieve “sustainable growth even in a challenging environment,” potentially reassuring investors about the company’s long-term resilience.

Conversely, shares of Cava plummeted nearly 8% in overnight trading after the fast-casual chain reduced its full-year forecast for the second consecutive quarter, a concerning signal for the company’s growth trajectory. This highlights the competitive intensity within the fast-casual sector and the challenges of sustaining high growth rates amid evolving consumer preferences and macroeconomic pressures.

A concerning trend of corporate layoffs is unfolding across the U.S. with recent announcements from major players like IBM, Amazon, Paramount, Target, and Meta. The question arises: is this a genuine consequence of technological advancements, or are companies leveraging “AI-washing” to mask deeper economic issues?

While some attribute the layoffs to the rise of AI, industry experts suggest that certain companies may be using this narrative as a convenient scapegoat for other underlying challenges or routine cost-cutting measures. The current government shutdown-induced absence of up-to-date employment data further complicates the assessment, fueling concerns that these workforce reductions might be indicative of a broader economic slowdown rather than solely attributable to AI-driven automation.

Data from Indeed reveals that job openings hit their lowest level in over four years last month. The site’s Job Posting Index, using February 2020 as a baseline, fell to 101.9 in October, marking its lowest point since February 2021. This decline in job postings reinforces the potential for a weakening labor market, suggesting that the spate of layoffs might be linked to deeper economic headwinds rather than solely to AI adoption.

Netflix’s “KPop Demon Hunters” has transcended the realm of mere entertainment, igniting a full-blown cultural and economic phenomenon. It’s also significantly impacting the K-pop market itself.

The film, which rapidly became Netflix’s most popular movie ever, has generated a staggering $10 billion for the K-pop music industry, according to CNBC’s Eunice Yoon. This financial windfall extends beyond music, influencing related markets. Shares of HYBE, JYP Entertainment, SM Entertainment, and YG Entertainment—the so-called “Big Four” K-pop companies in South Korea—have witnessed double-digit gains this year, illustrating the profound economic impact of the film’s success.

Yet the influence of “KPop Demon Hunters” stretches beyond the music industry, as Yoon notes. The film’s popularity has the potential to drive increased consumption of Korean cosmetics and food products. Moreover, it may even exert political influence in China, thereby expanding the film’s sphere of impact beyond the realms of entertainment and economics.

Following Meta’s substantial $14.3 billion investment in Scale AI and the subsequent hiring of its founder, questions arose regarding the AI startup’s future viability. However, CFO Dennis Cinelli dismissed speculation that that deal was an “acquihire” or licensing agreement, firmly stating that Scale’s business continues its upward trajectory. In his first public interview since joining the startup in 2022, Cinelli emphasized the company’s health and growth potential: