Nasdaq futures took a hit after a losing session, leaving investors puzzled about the future of megacap tech stocks. The Dow Jones Industrial Average futures rose by 0.1%, while the S&P 500 futures dipped by 0.2%. The Nasdaq 100 futures, however, tumbled by 0.4%. This comes on the heels of a disappointing day for the major averages, with the S&P 500 declining by 1.2% and the Nasdaq Composite dropping by 2%. The Dow Jones Industrial Average lost 251 points, or 0.5%.
One of the main concerns is the recent decline in Palantir's stock, which dropped by 8% despite surpassing third-quarter expectations. Investors are worried that Palantir's valuation, at over 200 times forward earnings, is too high for the software company and the broader AI theme. However, many investors remain optimistic about the long-term prospects of tech stocks, citing the robust spending on AI infrastructure.
Liz Young Thomas, head of investment strategy at SoFi, expressed a similar sentiment on CNBC's 'Closing Bell'. She believes that the current situation is not cause for immediate alarm, but the prolonged extension of the tech rally could eventually become a concern. Thomas also emphasized the ongoing 'chase' for large-cap stocks, which she expects to persist in the long term.
In the meantime, investors are turning to alternative data sources for clarity, as government reports remain scarce. On Wednesday, the ADP private payrolls report, weekly mortgage applications, and ISM services data will be released. Earnings season continues, with McDonald's reporting on Wednesday. According to FactSet data, approximately 82% of the 360 S&P 500 companies that have reported so far have beaten expectations, and the S&P 500 is projected to post a blended growth rate of over 12%.
The S&P 500 index would need to fall another 1.7% to test its 50-day moving average, currently at 6654.33. The Nasdaq Composite index, on the other hand, would need to drop by 3.3% to reach its 50-day moving average of 22,570.63. Small-cap stocks are already facing a challenging short-term outlook, with the Russell 2000 index ending the day below its 50-day moving average for the first time since August 1.
Despite the recent market volatility, some companies are still making headlines after hours. AMD's stock dropped by 1% after Amazon dissolved its stake in the company during the third quarter. Pinterest's stock plunged by 18% following disappointing third-quarter results. Super Micro Computer's AI stock tumbled by 10% after missing expectations for the first quarter and offering a bleak earnings forecast. These after-hours moves further highlight the ongoing uncertainty in the market.
