Weekly Market Recap: Markets Cool as AI Frenzy Fades and Inflation Data Looms

Market Overview

After three straight weeks of gains, U.S. equities lost steam, with the S&P 500 falling 1.6% and the NASDAQ sliding 3.0% amid renewed worries over overheated AI valuations. The Dow Jones dipped 1.2%, while small caps tracked by the Russell 2000 slipped 1.8%.

The pullback came as investors digested mixed signals—AI leaders like Palantir and Qualcomm posted strong results but failed to lift the market as analysts warned of stretched valuations and profit-taking in the tech sector. Meanwhile, consumer sentiment dropped to a three-year low, deepening the week’s risk-off tone.

Sector Performance (1-Week):

• Leaders: Energy (+1.6%), Health Care (+1.3%), Real Estate (+1.0%)
• Laggards: Communication Services (-1.7%), Consumer Discretionary (-1.5%), Technology (-4.2%)

Year-to-Date Leaders: Communication Services (+24.6%) and Technology (+24.4%) continue to dominate, while Consumer Staples (+2.3%) and Materials (+4.2%) lag behind.

Internationally, European stocks fell for a second straight week, weighed down by disappointing corporate earnings and slowing data center demand. The Bank of England’s decision to hold rates sparked optimism for a December cut. In Asia, Japan and South Korea slumped on chip valuation warnings, while China’s markets advanced on support for state-funded data centers using domestic chips.

Federal Reserve Insights & Economic Roundup

Bond markets also faced turbulence as record global issuance surpassed $5.9 trillion year-to-date, led by governments and tech giants like Alphabet and Meta—both of which saw their debt offerings oversubscribed multiple times. Despite heavy issuance, investors continue to absorb supply, with the Bloomberg U.S. Treasury Index up 6% year-to-date.

Still, the IMF warned global public debt could top 100% of GDP by 2029, marking the highest level since 1948. With Treasury yields hovering near cycle lows and credit spreads tight, investors appear undercompensated for risk, prompting some to question how long demand can remain this resilient.

In commodities, WTI crude retreated toward $60/barrel amid signs of oversupply and weakening demand, while gold hovered near $4,000/oz, supported by dollar weakness and renewed safe-haven demand.

On the economic front, private-sector job data hinted at cooling momentum. ADP’s October report showed modest gains, offset by layoffs rising at their fastest pace in two decades. With the official nonfarm payroll report delayed by the government shutdown, the Fed will likely rely on this softening labor data to guide its next move.

The Week Ahead

• Tuesday: NFIB Small Business Optimism (Oct)
• Wednesday: MBA Mortgage Applications (Nov 7)
• Thursday: CPI (Oct), Real Average Earnings, Jobless Claims, Federal Budget Balance (Oct)
• Friday: Retail Sales (Oct), PPI (Oct), Business Inventories (Sep)