U.S. stocks follow Asia, Europe lower on fears Nvidia and other superstars are overvalued
The US stock market fell after another turbulent day on Tuesday, as concerns continued to weigh on Nvidia, Bitcoin and other Wall Street stars that their prices were too high.
After quickly falling to a morning loss of 1.5%, the S&P 500 regained almost all of it before sinking again. It ended with a decline of 0.8% and further moved away from its all-time high set late last month. The Dow Jones Industrial Average lost 498 points, or 1.1%, and the Nasdaq composite fell 1.2%.
Nvidia was once again the market heavyweight, and its 2.8% drop took its loss for the month so far to more than 10%. It’s a fall strong enough that Wall Street has a name for it: a correction.
What Nvidia does is disproportionately important to savers’ 401(k) accounts because its immense size means it’s the most influential stock on Wall Street. He is single-handedly leading the direction of the S&P 500 days after strong demand for his artificial intelligence chips helped him briefly surpass $5 trillion in total value.
The U.S. stock market’s recent woes are a sharp turnaround from its near-relentless rally since April, when Wall Street last suffered a selloff after President Donald Trump shocked the world with steep tariffs.
The rise was so sharp that critics say it may have driven prices too high, too quickly and left the market at risk of a sharp fall. They particularly highlight stocks driven by the AI craze, which have seen spectacular growth for years.
For example, Nvidia’s price has more than doubled in four of the last five years, while Palantir Technologies’ stock has more than doubled in the first six and a half months of this year.
Many large investors still appear to expect stock prices to rise again, according to the latest monthly survey of global fund managers by Bank of America Global Research. But when asked what the No. 1 risk to the market was, with a lower probability of happening but a risk of very significant damage, 45% cited an AI bubble. This helped avoid potential problems in the bond market, inflation and trade wars.
A record percentage of investors also say companies are “overinvesting,” according to the survey. The worry is that all the dollars invested in AI chips and data centers around the world may not produce the kind of revolution that AI proponents predict, or at least a less profitable one.
Other high-flying sectors of the market, with their own evangelists, have also struggled of late. Bitcoin’s price briefly fell below $90,000 in the morning, down from nearly $125,000 last month. It then recovered some of its losses and climbed back towards $93,000.
Home Depot also helped drag the market down after a 6% drop. It reported a weaker summer profit than analysts expected and cited various reasons. Chief among them was the absence of storms, which would have caused customers to buy more home improvement products. CEO Ted Decker also pointed to “consumer uncertainty and continued pressure on housing” to prevent an expected increase in demand.
Reporting higher earnings is one way a company can make its stock price appear cheaper, because stock prices tend to follow earnings over the long term. That raises the stakes for Nvidia’s earnings report released Wednesday, which could either help stem its stock’s slide or make it worse.
Elsewhere on Wall Street, Cloudflare fell 2.8% after an earlier issue at the internet infrastructure provider caused global outages for ChatGPT and other services.
Overall, the S&P 500 fell 55.09 points to 6,617.32. The Dow Jones Industrial Average fell 498.50 to 46,091.74, and the Nasdaq composite fell 275.23 to 22,432.85.
In the bond market, Treasury yields also oscillated throughout the day. The 10-year Treasury yield finally fell to 4.11% from 4.13% Monday evening.
Yields have fluctuated on doubts whether the Federal Reserve will cut its main interest rate at its next meeting in December, which traders had previously seen as highly likely. What the Fed does is crucial to the market as stock prices have hit record highs, in part because of expectations of continued rate cuts.
The Fed has already cut rates twice this year in hopes of supporting a slowing labor market. But lower interest rates can make inflation worse, and inflation has remained stubbornly above the Fed’s 2% target.
In foreign stock markets, indices fell in Europe and Asia.
South Korea’s Kospi fell 3.3%, Japan’s Nikkei 225 fell 3.2% and France’s CAC 40 fell 1.9%, representing some of the biggest declines in the world.
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AP Business writers Matt Ott and Elaine Kurtenbach contributed.
