US Markets Decline on Worries Over Tech Valuations and Job Market Weakness

U.S. stocks lost momentum on Tuesday morning as major AI-driven names retreated, weighed down by concerns that valuations have climbed too high. Investors also digested fresh labor market data showing further signs of economic cooling.

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The S&P 500 slipped 0.2% at the open, dragged lower by weakness in the technology and communications services sectors. Nvidia Corp. was the biggest drag on the index, falling after Japan’s SoftBank Group Corp. announced it had sold its entire stake in the chipmaker for $5.83 billion to fund new artificial intelligence ventures. Meanwhile, the tech-focused Nasdaq 100 declined 0.4%, while the Dow Jones Industrial Average managed a modest 0.2% gain.

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After two straight days of advances, the latest pullback suggested the rally may have been short-lived. “This could turn out to be just a head fake,” said Matt Maley, chief market strategist at Miller Tabak + Co. “There are still reasons to believe the market might finally experience a short-term correction of more than 3%.” Notably, U.S. equities haven’t seen a decline of that magnitude since April.

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Elsewhere in the technology space, CoreWeave Inc. shares slumped after the company lowered its annual revenue forecast. The cut prompted JPMorgan to downgrade the stock from “overweight” to “neutral,” citing a more cautious growth outlook.

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The broader weakness reflects a growing sense that valuations for tech and AI-related companies may have reached unsustainable levels. “The market remains expensive from a fundamental standpoint, even if you fully price in peak AI enthusiasm,” noted Tom Essaye, founder and president of the Sevens Report.

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That sentiment appears to be showing up in trading activity. According to data from Citi Research, investors have been ramping up bearish positions over the past week, including $3.75 billion in net new short bets on the Nasdaq. “New shorts have dominated flows across U.S. equities,” wrote analysts led by Chris Montagu in a Tuesday note, adding that the trend has been “accelerating throughout the past week.”

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At the same time, economic data added to the cautious mood. A report from ADP showed that U.S. private-sector payrolls fell by an average of 11,250 jobs per week in the four weeks leading up to Oct. 25. The report signaled ongoing softness in the labor market, reinforcing concerns about slowing economic momentum.

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Meanwhile, the National Federation of Independent Business (NFIB) said that small business optimism in October dropped to its lowest level in six months. The decline was attributed to weaker earnings and growing anxiety over the broader economic outlook, particularly regarding consumer demand and inflationary pressures.

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Still, some strategists believe the market could find support in the near term. The anticipated end of the U.S. government shutdown may help unlock new liquidity and reduce one layer of uncertainty. JPMorgan’s Market Intelligence team suggested that the resumption of federal operations could inject fresh funds into the economy, potentially bolstering risk appetite and stabilizing investor sentiment.

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Even so, the outlook remains mixed. While optimism around artificial intelligence continues to drive long-term bullish narratives, the near-term risks tied to stretched valuations, weakening labor trends, and shifting monetary policy expectations could keep volatility elevated. Many traders are balancing enthusiasm for innovation with a more cautious view of earnings growth and economic resilience.

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As the market adjusts to these crosscurrents, the question for investors is whether the recent pullback marks the start of a larger correction—or simply another pause before the next leg higher. For now, the answer may depend on how quickly economic conditions stabilize and whether corporate earnings can justify the lofty prices investors have been willing to pay.

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