Why stocks are headed for their worst week since April
Stocks are tumbling this week, headed for some of the worst losses since April.
The major indexes were on track to end the week in the red, with the Nasdaq Composite down over 2%.
Investors are focused on valuations, whether they should buy the dip, and the outlook for Fed cuts.
It’s been a tough week for the bulls.
The selling in the stock market continued on Friday, extending a decline that puts major indexes on track for a sharp weekly loss. The Nasdaq 100 was down more than 5% in five days, heading for its worst weekly performance since the tariff-fueled sell-off in April.
Here’s where US indexes stood shortly around 12:45 pm ET on Friday:
The sell-off was largely sparked by fears that valuations — especially in the market’s tech sector — have soared too high amid the excitement for generative AI.
Tech stocks led the losses throughout the week. Here were some of the big declines:
The decline picked up steam on Friday after the University of Michigan’s latest survey revealed that consumer sentiment had plummeted to a near-record low.
The Index of Consumer Sentiment dropped to a level of 50.3 for the month, below the expected reading of 53. With the exception of 2022, that was the lowest monthly consumer sentiment recorded since at least 1978.
“With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy,” Joanne Hsu, the director of the consumer sentiment survey, said in a statement.
There are a few takeaways emerging on Wall Street — and one level for the S&P 500 that forecasters say they’re watching. Here’s what you need to know:
Lofty valuations have been a concern among market pros for a while, but the issue appeared to take center stage this week after Palantir’s earnings failed to wow investors for the third quarter despite beating on every metric. The stock is trading at a forward price-to-earnings ratio of around 187, which is elevated compared to other top tech stocks, like Nvidia. Palantir stock is down 13% in the last five days.
“All of a sudden, we are starting to see some Tech heavyweights fail to live up to investor expectations,” David Rosenberg, the president of Rosenberg Research, wrote in a client note this week. “Nosebleed valuations got in the way,” he added of Palantir’s decline in particular.
Goldman Sachs’ CEO and Morgan Stanley’s CEO also warned this week that stocks could be headed for a correction, fanning fears that the market is overvalued.
“According to our base case valuations, many of the AI stocks are either fairly valued or moving into overvalued territory. If AI growth fails to live up to expectations, look out below,” Dave Sekera, the chief US market strategist at Morningstar, wrote in a note on Monday.
The concerns might also extend to other areas of the market that have seen strong gains this year. On Thursday, Tapestry, the owner of luxury brands Coach and Kate Spade, tanked 9% after strong earnings and guidance.
Brendan McDermid/REUTERS
Calls to buy the dip are growing louder on Wall Street.
In a note to clients on Thursday, JPMorgan’s market intelligence team said the bank would be buying any dips until at least hte end of the year. Strategists said they remained bullish on the market due to factors like strong economic growth and corporate earnings, as well as headwinds like tariffs fading out of the picture.
“Some big tech stocks are on sale, and are presenting buying opportunities for investors, especially for investors who have missed out on the market’s strength over the past two months,” Glen Smith, chief investment officer, GDS Wealth Management, said on Friday.
Mark Newton, the head of technical strategy at Fundstrat Research, said he also believed the weakness in tech stocks presented a buying opportunity for investors seeking a deal.
“This would align with my cycles and provide a very attractive entry point into late November or the first week of December, before a push back to new high territory,” Newton wrote of the recent sell-off in a client note.
There’s one silver lining to a weaker US job market: it’s making the case for Fed rate cuts stronger.
The sell-off in stocks picked up steam on Thursday as investors were jolted by fresh layoffs data: US employers announced over 153,000 job cuts last month — more than double the number of job cuts they announced in September, and the worst tally for October since 2003, according to Challenger, Gray & Christmas.
But the priced-in probability for future Fed rate cuts has climbed higher. The odds for another 25 basis-point rate cut in December rose past 70% on Thursday, while the odds of another 25 basis-point rate cut in January rose to 24%, according to the CME FedWatch tool.
“There is enough private payroll and layoff data to suggest that hte labor market is cooling,” Glen Smith, the CIO of GDS Wealth Management, said. “We think this cooling keeps the Fed’s rate cut plans alive for December and potentially into early 2026.”
6,665 represents the 50-day moving average in the S&P 500. It’s a key technical level that the benchmark index could soon test, Katie Stockton, a technical strategist and founder of Fairlead Strategies, wrote in a note on Friday.
If the index fails to find support at that level, that could mean there’s a risk of a “deeper decline,” with the index potentially falling to as low as 6,500 in the near-term, Stockton suggested. That would imply the benchmark index falling another 3% from its current levels.
Other technical strategists have suggested that the market could soon be headed for a rebound. Fundstrat’s Newton said he saw the index starting to bounce higher as soon as Friday or Monday of the following week.
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