Too Early to Worry About Tech Pullback?

While November is historically a strong month for equities, with the S&P 500 averaging a 1.8% gain according to the Stock Trader’s Almanac, the first full trading week of this November painted a less optimistic picture.

The S&P 500 and the Dow Jones Industrial Average each experienced declines exceeding 1%, while the tech-heavy Nasdaq Composite took a more significant hit, shedding around 3%. This marks the Nasdaq’s largest weekly loss since its 10% slump in early April.

The market’s anxieties have shifted from concerns about tariffs to worries surrounding the valuation of artificial intelligence (AI)-related stocks. The concentration of capital in a handful of leading tech giants is fueling speculation about a potential market correction. This concern isn’t unfounded, considering the meteoric rise of AI-driven companies and the potential for speculative bubbles to form.

“You’ve got trillions of dollars tied up in seven stocks, for example. So, it’s inevitable, with that kind of concentration, that there will be a worry about, ‘You know, when will this bubble burst?'” Tan Su Shan, CEO of DBS, Southeast Asia’s largest bank, recently stated, highlighting the potential instability lurking beneath the surface of the AI-fueled market rally.

Goldman Sachs’ CEO David Solomon echoed these sentiments, suggesting that turbulent times may lie ahead for investors. He anticipates a potential 10% to 20% drawdown in equity markets within the next 12 to 24 months, indicating a cautious outlook from one of Wall Street’s leading firms. This perspective underscores the inherent cyclicality of markets and the importance of risk management in the current environment.

However, market pullbacks can also present opportunities. Glen Smith, chief investment officer at GDS Wealth Management, believes that such corrections could offer strategic “buying opportunities” for investors seeking to capitalize on temporarily depressed valuations. This highlights the importance of a long-term investment horizon and the ability to identify fundamentally sound companies during periods of market volatility.

UBS multi-asset strategist Kiran Ganesh points out that corporate earnings have been “reassuring” despite valuation concerns, suggesting that the current market environment may be more resilient than some analysts predict. This suggests that the underlying economic fundamentals may be strong enough to support continued growth, even in the face of valuation headwinds. The strength of earnings provides a tangible measure of corporate performance, which can help to temper anxieties surrounding speculative market trends.

Ultimately, the market’s trajectory will depend on a complex interplay of factors, including economic data, geopolitical events, and investor sentiment. While caution is warranted, opportunities for growth remain, particularly for investors who are able to navigate market volatility with a disciplined and strategic approach.

Mixed Performance on Friday: U.S. indices presented a mixed performance stateside, with the S&P 500 and Dow Jones Industrial Average edging up slightly, while the Nasdaq Composite closed marginally lower. Across the Atlantic, the pan-European Stoxx 600 experienced a decline. However, U.S. futures indicated a potential rebound in Sunday evening trading.

China’s CPI Rises: China’s consumer price index (CPI) for October showed a 0.2% year-on-year growth, surpassing analysts’ expectations of zero growth. This marks the first month since June that prices have risen, signaling a potential shift in the Chinese economic landscape.

U.S. Government Averts Shutdown: A bipartisan agreement among Democratic senators has paved the way for funding the U.S. government through the end of January, effectively averting a potential government shutdown. This resolution provides a degree of stability to the economy, at least in the short term.

Government Shutdown Impacts Jobs Report: The recent U.S. government shutdown prevented the Bureau of Labor Statistics from releasing its monthly employment data, leaving economists to speculate about the potential insights the report would have provided. The absence of this critical data point introduces a degree of uncertainty into the economic outlook.

[PRO] Oversold Stocks: CNBC Pro’s stock screener tool has identified several oversold stocks, based on their 14-day relative strength index (RSI). These stocks potentially offer attractive investment opportunities, as they may be poised for a price recovery in the near future.

The Rise of Family Office Imposters: The global wealth boom has inadvertently fueled a rise in individuals falsely representing themselves as family office representatives. These imposters seek to deceive investors or simply inflate their social status, highlighting the need for increased due diligence and verification within the investment community. The inherent privacy surrounding single family offices creates an information vacuum that imposters can exploit, making verification challenging.

— Lee Ying Shan