In the short-term the stock market is undergoing a major correction. The broad S&P 500 composite has cracked under its 50-day moving average and is off about 2.7% so far this week. The impacted Nasdaq Composite is set for its largest weekly loss since early April, having lost 1.6% just on Friday itself. In the midst of these exciting market developments, OpenAI just flipped its position. The company has scrapped the idea it needs the government’s help to cover its $1.4 trillion investment in chips and infrastructure.
This sudden shift in OpenAI’s stance raises questions about the tech sector’s future, particularly as the CBOE Volatility Index surged by 16%. And per the University of Michigan’s survey, consumer sentiment has cratered to its lowest level since June 2022. This pronounced decline is yet another sign of worry in an otherwise strong economy. AI and tech stocks have been pivotal in driving the market’s bull run in recent years, but rising apprehensions about valuations are now surfacing.
In fact, CEOs of both Goldman Sachs and Morgan Stanley have recently shared concerns about costly valuations in the tech industry. Scott Wren noted, “There are some concerns percolating under the surface with AI valuations,” emphasizing the growing skepticism among investors. This warning grows even stronger given the lengthening U.S. government shutdown. Millions fear it more than any other thing because of what it could do to ruin economic stability.
Now, consider that on Friday the S&P 500 was closing down 1%. Market analysts have recently been pushing back on how long this trend can be sustained. They should be worried because the bar for positive earnings surprises continues to rise higher and higher. According to Wells Fargo Investment Institute, the current S&P 500 drawdown presents a buying opportunity for long-term, buy-and-hold investors. They understand that opportunity lies in the strategic decisions that can be made from the market’s unpredictable headspace.
David Russell remarked on the implications of the ongoing government shutdown: “The government shutdown creates further risk because the longer it continues, the more its impact will be felt on Main Street.” Private capital is watching these moves intently. The relationship between government policy and market performance remains a key point of interest.
As market participants navigate this turbulent landscape, Mike O’Rourke raised further concerns about technology companies entangled with those lacking adequate resources. He stated, “Nearly every major technology company in the US equity market has celebrated their entanglement with a company that lacks the resources to meet its obligations.”