Wall Street falls as economic concerns and valuation worries hit stocks
Wall Street has opened in the red as jitters over the health of the US economy, and sky high tech valuations, continue to hit the markets.
The Dow Jones industrial average, of 30 large US companies, has dropped by 209 points, or 0.45%, in early trading to 46,703 points.
The broader S&P 500 index is down 0.6%, and the tech-focused Nasdaq has lost almost 1%.
Fawad Razaqzada, market analyst at City Index, says:
“Risk appetite continued to weaken Friday morning as European stocks and US futures resumed their slide after a brief bout of dip-buying faded – the sort of price action we have been accustomed to all week really.
Some analysts warn that this year’s artificial-intelligence-led rally has finally come to a halt, while others suggest markets needed to cool down anyway with indices racing to record highs without much pause and new stimulus.”
This has been a tricky week for the markets – the S&P 500 and the Dow are both set for their steepest weekly loss in four, while the Nasdaq is poised for its worst weekly performance since March, Reuters reports.
The selloff seems to be driven by anxiety over the ongoing US government shutdown, the resulting dearth of economic data, and warnings that an AI bubble might burst soon.
Stocks fell yesterday after a report that US company job cuts jumped in October.
European stocks remain in the red today too – the FTSE 100 is now down 95 points, or almost 1%, at 9640 points.
Key events
Wall Street’s fear gauge, the CBOE Volatility Index, has hit its highest level in more than two weeks.
ING: Situation starting to turn ugly on the US jobs outlook
James Knightley, chief international economist at ING, is concerned by the latest US consumer sentiment data released today (see earlier post).
He explains:
The real concern though is regarding the jobs market. 71% of households now expect unemployment to rise over the coming 12M while only 9% expect unemployment to fall. That gives a net reading of 62% predicting higher unemployment versus 52% last month. A huge increase which as the chart below shows, has historically been the prelude to an ugly outcome for jobs.
Tesla is joining in today’s selloff, with its shares dropping by 3.5% today.
Tesla’s stock doesn’t seem to be getting a lift from yesterday’s approval of Elon Musk’s new $1tn pay deal, which incentivises the company’s CEO to hit some stretching targets.
CCLA, the UK’s largest charity asset manager, isn’t impressed by the huge pay package.
Dr James Corah, head of sustainability at CCLA, says:
“Putting the cult of personality, ideology and politics to the side, the announcement of Elon Musk’s pay package raises questions of governance that we, as investors for the longer-term on behalf of church, charities and local authorities, consider a red flag.
The question is – would any other listed business give any other person this kind of ‘incentive plan’? At CCLA, we believe that good governance demands accountability: no individual, however talented, should be so disproportionately empowered, nor considered the sole engine of success. We expect executive pay to be fair, proportionate, and aligned with long-term value creation, and we continue to challenge companies that fail to meet these standards.”
US consumer sentiment retreats, unless you’re a big shareholder!
A closely-watched gauge of US consumer sentiment has fallen as anxiety over the government shutdown rises, although the wealthy aren’t sharing the gloom.
The University of Michigan’s consumer sentiment index has fallen by 6% this month, led by a 17% drop in current personal finances and a 11% decline in year-ahead expected business conditions.
Surveys of Consumers director Joanne Hsu cites fears that the shutdown is hurting growth, saying:
With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy. This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation.
There is one key exception, though, Americans with chunky shareholdings are in a jollier mood. Hsu says:
Consumers with the largest tercile of stock holdings posted a notable 11% increase in sentiment, supported by continued strength in stock markets.
AI chipmaker Nvidia is the biggest faller on the Dow Jones Industrial Average in early trading, down 2.2%.
It’s followed by construction equipment maker Caterpillar (-2.1%).
FT: $750bn wiped off major AI stocks this week
The Financial Times has calculated that the market value of eight of the most valuable AI-related stocks — including Nvidia, Meta, Palantir and Oracle — has fallen by more than $750bn since the end of last week.
Wall Street falls as economic concerns and valuation worries hit stocks
Wall Street has opened in the red as jitters over the health of the US economy, and sky high tech valuations, continue to hit the markets.
The Dow Jones industrial average, of 30 large US companies, has dropped by 209 points, or 0.45%, in early trading to 46,703 points.
The broader S&P 500 index is down 0.6%, and the tech-focused Nasdaq has lost almost 1%.
Fawad Razaqzada, market analyst at City Index, says:
“Risk appetite continued to weaken Friday morning as European stocks and US futures resumed their slide after a brief bout of dip-buying faded – the sort of price action we have been accustomed to all week really.
Some analysts warn that this year’s artificial-intelligence-led rally has finally come to a halt, while others suggest markets needed to cool down anyway with indices racing to record highs without much pause and new stimulus.”
This has been a tricky week for the markets – the S&P 500 and the Dow are both set for their steepest weekly loss in four, while the Nasdaq is poised for its worst weekly performance since March, Reuters reports.
The selloff seems to be driven by anxiety over the ongoing US government shutdown, the resulting dearth of economic data, and warnings that an AI bubble might burst soon.
Stocks fell yesterday after a report that US company job cuts jumped in October.
European stocks remain in the red today too – the FTSE 100 is now down 95 points, or almost 1%, at 9640 points.
China poised to lift ban on chips exports to European carmakers after US deal
Lisa O’Carroll
The vital flow of chips from China to the car industry in Europe looks poised to resume as part of the deal struck last week between Donald Trump and his Chinese counterpart, Xi Jinping.
The Netherlands has signalled that its standoff with Beijing is close to a resolution amid signs China’s ban on exports of the key car industry components is easing.
The ongoing US government shutdown has deprived us of the latest monthly US jobs report, alas.
But Canada has stepped into the news vacuum with its own non-farm payroll report.
It shows that employment across Canada increased by 67,000 ( or 0.3%) in October, the second consecutive monthly increase.
This lifted the Canadian employment rate by 0.2 percentage points to 60.8%, while the unemployment rate declined 0.2 percentage points to 6.9%.
The potential sale of ITV’s media arm to Sky would be “anything but straightforward”.
So says Juliane Althoff, film and TV lawyer and partner at media and entertainment law firm Simkins LLP:
“A sale of ITV’s media and entertainment arm to Sky would be anything but straightforward, not least because ITV’s entertainment arm forms a huge part of its public service broadcasting identity.
“If this deal were to proceed, it would represent a seismic shift in the UK’s broadcasting landscape and could fundamentally reshape how British audiences access homegrown content. It would raise complex regulatory and policy questions and require close scrutiny by Ofcom and the Competition Markets Authority to ensure continued variety given Sky’s existing market presence in the pay-tv sector.
“There are countless legal and commercial issues to consider: existing talent contracts, rights chains and content licensing and any potential change of control triggers, to name just a few. These are all compounded by the involvement of third-party producers and cross-border financing structures, all of which would require careful negotiation.”
Goldman Sachs predicts UK interest rates will fall to 3% by July 2026
Investment banks are predicting the Bank of England will cut interest rates in December, after narrowly deciding to leave them on hold yesterday.
Goldman Sachs (which had expected a cut on Thursday) is still forecasting four cuts by next summer.
It told clients that the Bank’s Monetary Policy Committee is likely to cut further than the market expects, if the data come in weaker than the Committee’s expectations, adding:
Taken together, we therefore now forecast cuts in December, February, April and July (vs November, February, April and July) to an unchanged terminal rate of 3%.
ITV are still the top riser in London this morning, up almost 15% after confirming it could sell its broadcasting operations to Sky.
Chris Beauchamp, chief market analyst at IG, says the talks have given ITV’s share price a “much-needed shot in the arm”, explaining:
“The woeful story of ITV’s share price has been given a lift by today’s news, but it shouldn’t obscure how disappointing performance has been over the last decade.
The chunky dividend helps, but there is a major risk that the deal won’t go through, or will be heavily modified, so investors should be careful about tuning in late to this story.”
Indeed, in November 2015 ITV’s share price was around £2.40 – right now, it’s 77.6p.
European stock markets are on track for their worst week since August.
The Stoxx 600 index is down 0.85% today, putting it on track for a 1.5% weekly decline, as market are hit by worries about an AI bubble and the health of the US economy.
In London, the FTSE 100 index is down 70 points or 0.75%, with RightMove (-12%) still leading the fallers after its plans for an AI investment splurge worried investors.
Data yesterday showing a jump in US job layoffs hit Wall Street, where further losses are expected today.
Shares in British Airways owner International Airline Group (IAG) are down over 8% this morning after it reported a drop in demand for economy fares on transatlantic flights this summer.
IAG told shareholders that the North Atlantic market saw “some softness in US point of sale economy leisure”, while prices across its airlines were lower in the European market because of “high growth by British Airways and more competitive markets elsewhere”.
Pre-tax profits in the three months to the end of September fell by 2.1% to €1.87bn (£1.64 billion), down from €1.91bn a year ago.
IAG – which also owns Aer Lingus, Iberia and Vueling – reported a 2.4% increase in its capacity, but a 2.4% decline in passenger revenue.
Tom Ward, an industry analyst at Bloomberg Intelligence, has called the talks between ITV and Sky a “positive surprise” for ITV.
Ward says the potential price tag implies a “healthy multiple” of almost 8 times next year’s earnings before interest, taxes, depreciation and amortization. The market hasn’t been attributing much value to the media and entertainment unit, Ward wrote in a research note Friday, Bloomberg reports.
