- Major U.S. stock indices continued to decline, falling below key technical levels amid concerns of an AI bubble and uncertain interest rates.
- Volatility surged, with the CBOE Volatility Index rising sharply and futures across tech and small-cap stocks dropping early Tuesday.
- Retail traders expressed frustration at the rapid rise and recent downturn, lowering sentiment toward key ETFs.
- Key economic data releases and notable earnings are expected Tuesday as market participants remain cautious.
- Global assets, including Asian markets and cryptocurrencies, also experienced notable declines following negative cues from U.S. markets.
Major U.S. equity markets saw a deepened sell-off on Monday, driven by persistent fears of an Artificial Intelligence (AI) bubble and ongoing uncertainty over interest rate policy. Both the S&P 500 Index and Nasdaq Composite closed below their 50-day simple moving averages, a technical level that traders often watch for overall market direction.
Volatility spiked, with the CBOE Volatility Index (VIX) jumping nearly 13% during Monday’s session. The S&P 500 VIX futures rose about 7% overnight. Early Tuesday trading showed futures contracts for the Nasdaq 100 and Russell 2000 down about 0.50%, while the S&P 500 and Dow futures dropped 0.44% and 0.37%, respectively.
Retail traders showing concern on ETF streams moved their outlook on the SPDR S&P 500 ETF (SPY) and Invesco QQQ Trust (QQQ) funds from ‘bullish’ to ‘neutral’. Some traders cited the rapid gains since April, with one user stating, “Too high, too fast. Now it’s been a painful 2 weeks.” Optimism among a minority was tied to expectations of a U.S.-Saudi AI agreement, with Saudi crown prince Mohammed bin Salman scheduled to meet President Donald Trump. Ahead of this visit, Trump said the U.S. plans to sell F-35s to Saudi Arabia.
The market downturn was led by AI-related stocks, with NVIDIA dropping 1.9%. Sectors such as financials, consumer, industrials, materials, and communications faced strong selling pressure, though energy stocks saw gains. Monday’s trading session pushed major ETFs lower, with QQQ, SPY, DIA, and IWM dropping 0.85%, 0.93%, 1.16%, and 1.99%, respectively, as mentioned by MarketWatch.
On the economic front, traders continue to track indications from Federal Reserve officials. Rate cut expectations remain divided after stronger-than-expected regional manufacturing data. Fed Governor Christopher Waller called for a possible December rate cut, citing labor market weakness.
Upcoming events include the delayed August factory orders report and the November housing market survey, both at 10 a.m. ET, followed by remarks from Fed Governor Michael Barr at 10:30 a.m. ET. Companies set to report earnings Tuesday include Baidu, Home Depot, Medtronic, PDD Holdings, Weibo, La-Z-Boy, and Dolby Labs.
Global assets moved lower in response to U.S. market weakness. Crude oil reversed earlier gains, and Gold prices declined further. U.S. Treasury yields slipped while the dollar weakened. Bitcoin fell below the $90,000 mark before a small recovery, down more than 5% over the previous day. Asian markets also retreated, with indices in Japan and South Korea dropping over 3%, and Taiwan declining more than 2.5%.
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