S&P 500: -1.63% DOW: -1.21% NASDAQ: -3.04% 10-YR Yield: 4.09%
What Happened?
This week uncertainty reigned as the record-length U.S. government shutdown left investors “flying blind,” with crucial economic reports on ice and confidence shaken. The blackout in official government data forced market participants to rely on third-party reports for insights, exposing troubling labor market trends. Notably, the U.S. companies slashed 153,000 jobs in October, according to Challenger data, the biggest October figure in over twenty years, driven heavily by tech sector layoffs as firms grappled with AI-driven restructuring, softer demand, and belt-tightening.
Equity markets responded with a sharp sell-off, particularly in the tech sector. The Nasdaq Composite led the slide, posting its steepest weekly drop since April; both the S&P 500 and the Dow finished the week firmly in the red as defensive stocks provided limited shelter. The anxiety was palpable: bubble worries in tech are resurging, with investors taking profits and reassessing growth prospects after years of relentless AI and capex spending. Market sentiment plumbed new lows, as survey data reflected the lowest consumer optimism in over three years. Giants like Nvidia, Meta, and Palantir suffered double-digit declines, highlighting growing skepticism around the payoff of costly AI expansions.
Looking beyond equities, crypto had its own reckoning. Bitcoin snapped its celebrated seven-year “Uptober” streak, registering a rare October decline, closing the month near $100,000 after hitting new highs earlier in October. The selloff rippled across digital assets, underlining a risk-off mood and greater caution among traders heading into year-end.
OpenAI Exec Says It Could Use Some Financial Support From the Government
- OpenAI’s CFO sparked controversy by suggesting the U.S. government might “backstop” the company’s massive AI infrastructure debt, a remark later walked back by executives.
- The episode raised fresh doubts about the sustainability of debt-fueled growth across the AI sector.
The key takeaway – OpenAI, the company behind ChatGPT and one of the world’s highest-valued startups, faced controversy this week when CFO Sarah Friar floated the idea that the U.S. government could serve as a “backstop” to help facilitate the massive debt financing needed for the company’s multi-trillion dollar AI infrastructure ambitions. Her comments immediately stirred debate among market analysts, raising red flags about government involvement in supporting an unprofitable private company and fueling further anxiety over whether debt-driven AI expansion is contributing to a tech sector bubble.
Both Friar and CEO Sam Altman swiftly clarified that OpenAI is not seeking government guarantees for its own data center obligations and does not want taxpayers on the hook for corporate risk, though they confirmed discussions with the government about supporting the domestic chip industry at large. The episode underscores the fragility and tensions in the AI boom, as heavy spending and unclear profitability provoke fundamental questions about the sustainability of the current market cycle.
Nasdaq Falls as Worries Mount on Jobs and AI Valuations
- Billions invested in AI by mega-cap tech is leaving many uncertain about where we’re headed causing investors to sell, NVIDIA lost more than $400 billion in market cap this week.
- Although much of big tech beat their forecasted earnings for Q3, NASDAQ plummeted reaching its worst week since April.
The key takeaway – Major mega-cap tech has delivered higher than expected earnings reports and announced multiple billions they plan to invest in artificial intelligence in recent weeks. Unfortunately, this did not prove optimistic for investors with many selling off their shares and enough to leave a mark. Microsoft, Amazon, Meta, Google, Nvidia, and Tesla all experienced losses this week, leading to the worst performance for the NASDAQ index since April. Palantir had a strong quarter with higher expectations to finish of the year than originally projected yet saw an almost 8% decline in stock Tuesday. It’s important to buy low and sell high, and investors certainly captured their gain. Nonetheless, investor fear is leading this market decline, and not poor earnings from top corporations.
That said, uncertainty is not unwarranted because we’ve seen this rhyme before. Overly concentrated markets and inflated valuations that haven’t returned the multiples they are investing. However, the capital that’s funding these investments is coming directly from the internal revenues these big dogs have. Numbers are high, but so is their confidence in AI. Next week, the markets primary driver, Nvidia, reports earnings to hopefully paint a better picture for investors on the primary drivers in AI.
Senate Considers Revised Plan to End Government
- Senate Republicans anticipate a vote Friday on a new proposal to end the government shutdown, combining short-term spending with three full-year funding bills.
- Democrats seek guarantees on Affordable Care Act subsidies for 22 million people and a halt to White House-initiated firings to support the proposal.
The key takeaway – As the FAA started plans to gradually reduce major airports’ flight schedules by 10%, new news came to fruition that the Senate is considering a revised plan to end the government shutdown. Senate leaders, led by John Thune, announced Thursday that members should prepare for a vote on a new proposal aimed at ending the shutdown and restoring federal operations, as mounting pressure from airlines, travelers, and federal workers intensifies.
The proposed Senate bill would pair a short-term funding measure with several full-year appropriations, potentially providing temporary relief to critical services impacted by the shutdown, including aviation safety and airport operations, while negotiations over longer-term demands, such as healthcare subsidies, continue among lawmakers. Both parties remain at odds over key provisions, but with travel disruptions and staff shortages threatening to worsen in the coming days, momentum is building for a possible compromise to bring the historic shutdown to a close.
From Around the Watercooler
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FAA cutting flights at major airports nationwide
Tesla Shareholders Approve Elon Musk’s $1 Trillion Pay Package
Private-Credit Earnings Ease Investor Concern Over Asset Class’s Health
Blackstone Is Offloading a Flopped $1.8 Billion Investment in Senior Housing