Stocks Tumble as Bank Chiefs Flag Sky-High Prices: Markets Wrap
(Bloomberg) — The global stock rally hit a speed bump as earnings from artificial-intelligence bellwether Palantir Technologies Inc. failed to impress and Wall Street chiefs warned of a correction due to rich valuations.
Futures on the S&P 500 fell 1.1% after the US benchmark eked out a modest gain in the previous session, lifted by narrow advances concentrated in technology shares. Nasdaq 100 futures tumbled 1.4%, with Palantir declining as much as 6.9% in premarket trading.
The dollar held at its highest since August as Federal Reserve officials offered mixed signals on the path of interest rates. Treasuries rebounded, with the 10-year yield falling three basis points to 4.09%. Gold steadied, while Bitcoin headed for the lowest level since June.
Morgan Stanley’s Ted Pick and Goldman Sachs Group Inc.’s David Solomon were among Wall Street chiefs at a summit in Hong Kong warning that markets could be due for a major pullback. Their caution comes as investors grow uneasy with stock prices after the S&P 500 surged more than 35% from April lows, fueled by a frenzied rally in tech megacaps tied to the AI boom.
Corporate earnings are strong but “what’s challenging are valuations,” said Mike Gitlin, president and chief executive officer of investment manager Capital Group, during a Hong Kong Monetary Authority financial summit.
Palantir failed to impress even after the company raised its annual revenue outlook and outpaced analyst estimates for third-quarter sales. Investors have sent the firm’s shares up more than 150% so far this year, closing Monday at a record $207.18. The company had a price-to-sales ratio of 85 as of Friday — the highest in the S&P 500 Index.
“On Palantir, there’s been quite a lot of ‘sell-on-the-news,’ particularly for stocks which had outperformed prior to their earnings,” said Karen Georges, a fund manager at Ecofi Investissements in Paris. “When you have lofty valuations, it’s really not surprising to see harsh market price action.”
What Bloomberg strategists say…
Investors appear to be needing fresh signals to restore faith in the bull market, which began stalling last week. Indeed, they are concerned that market leadership is concentrated. Even a small wobble in the mega-cap growth story or an unexpected macro headwind can trigger outsized moves lower.
— Mark Cranfield, MLIV strategist. For full analysis, click here.
Investors have sent the firm’s shares up more than 150% so far this year, closing Monday at a record $207.18. The company had a price-to-sales ratio of 85 as of Friday — the highest in the S&P 500 Index.
UK bonds outperformed their European peers after Chancellor of the Exchequer Rachel Reeves signaled that further tax increases may be needed to achieve fiscal consolidation in this month’s budget, while stressing the importance of curbing inflation and keeping borrowing in check.
The 10-year gilt yield fell three basis points to 4.41%, while the pound weakened as traders priced in a quicker pace of interest-rate cuts.
Meanwhile, European shares dropped 1.5%. Asian equities retreated as well, with a gauge of technology companies set for its biggest drop since September.
Also weighing on the negative sentiment Tuesday was increased uncertainty over the Fed’s policy outlook.
A flurry of US central bank officials offered different views Monday, with Chicago Fed President Austan Goolsbee saying he’s more concerned about inflation than the job market. Earlier, Governor Lisa Cook said she sees the risk of further labor-market weakness as greater than the chance that inflation will pick up.
Her comments echoed remarks from her colleagues who were equally noncommittal about whether the central bank should deliver a third straight rate reduction when policymakers convene in December.
San Francisco Fed President Mary Daly said officials should “keep an open mind” about the possibility of a December cut. Governor Stephen Miran noted policy remains restrictive.
“With US data softening and Fed officials keeping policy optionality alive, investors are reassessing positioning rather than chasing risk,” said Billy Leung, an investment strategist at Global X Management.
Corporate Highlights:
BP Plc’s profit exceeded expectations with operational improvements and higher oil and gas production outweighing lower prices, as the company’s turnaround plan builds momentum. Starbucks Corp. is selling a majority stake in its China unit to private equity firm Boyu Capital for $4 billion to help accelerate its coffeehouse business in the country. Netflix Inc. is in talks to license video podcasts distributed by iHeartMedia Inc. as it looks to compete head-on with YouTube, according to people familiar with the conversations. Saudi Aramco reported profit that beat analysts’ estimates as a boost in production outweighed the impact of weaker oil prices. Royal Philips NV’s order intake climbed 8% in the third quarter amid robust demand for the manufacturer’s medical devices in North America. Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 1.4% as of 9:33 a.m. London time S&P 500 futures fell 1.1% Nasdaq 100 futures fell 1.4% Futures on the Dow Jones Industrial Average fell 0.8% The MSCI Asia Pacific Index fell 1% The MSCI Emerging Markets Index fell 1.1% Currencies
The Bloomberg Dollar Spot Index rose 0.1% The euro was little changed at $1.1510 The Japanese yen rose 0.4% to 153.58 per dollar The offshore yuan was little changed at 7.1257 per dollar The British pound fell 0.5% to $1.3072 Cryptocurrencies
Bitcoin fell 2.7% to $104,011.67 Ether fell 3% to $3,494.17 Bonds
The yield on 10-year Treasuries declined three basis points to 4.08% Germany’s 10-year yield declined three basis points to 2.64% Britain’s 10-year yield declined four basis points to 4.40% Commodities
Brent crude fell 1.1% to $64.16 a barrel Spot gold fell 0.2% to $3,994.93 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Julien Ponthus, Neil Campling, Eleanor Thornber and Subrat Patnaik.
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