Stocks Finish Sharply Lower on Concerns About Lofty Valuations

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -1.17%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.53%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.07%.  December E-mini S&P futures (ESZ25) fell -1.17%, and December E-mini Nasdaq futures (NQZ25) fell -2.08%.

US stock indexes retreated on Tuesday, with the S&P 500 falling to a 1.5-week low and the Dow Jones Industrials and Nasdaq 100 dropping to 1-week lows.   Shares of AI bellwether Palantir Technologies closed down more than -7% to lead AI-infrastructure stocks lower on Tuesday despite reporting better-than-expected Q3 sales.  The price-to-sales ratio for Palantir Technologies rose to 85, the highest in the S&P 500, raising concerns about extreme valuations and sparking a long liquidation in the stock.  The weakness of the Magnificent Seven megacap technology stocks and semiconductor makers on Tuesday also weighed on the overall market.

Valuation concerns also weighed on stock prices and sparked risk-off sentiment in asset markets following warnings from a couple of Wall Street banks.  At the Hong Kong Monetary Authority financial summit on Tuesday, Morgan Stanley and Goldman Sachs both said that equity markets could be due for a pullback of more than 10% in the next 12 to 24 months, citing caution over stock prices after the S&P 500 surged more than +35% from April lows to a record high last week. 

Lower bond yields on Tuesday were supportive of stocks, with the 10-year T-note yield falling -2 bp to 4.09%.

US Oct Wards total vehicle sales slowed to 15.32 million, weaker than expectations of 15.50 million and the fewest in 14 months.

The markets are discounting a 69% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10.

The markets are looking ahead to oral arguments at the Supreme Court on Wednesday about whether President Trump's reciprocal tariffs are legal. Oral arguments may provide hints about how the Supreme Court might rule.  The Supreme Court is expected to issue its ruling by late this year or early in 2026.  Lower courts have already ruled that Mr. Trump's reciprocal tariffs are illegal, finding they are based on a specious claim of emergency authority under the 1977 International Emergency Economic Powers Act.  If the US Supreme Court upholds those rulings and strikes down the tariffs, then the US government may have to refund the reciprocal and fentanyl-linked tariffs already collected, totaling more than $80 billion, and Mr. Trump's power to impose tariffs may be limited to well-founded sections of US trade law, such as sections 232, 301, and 201.

Q3 corporate earnings season continues at a strong clip this week, with 136 of the S&P 500 companies reporting earnings this week.  According to Bloomberg Intelligence, 80% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021.  However, Q3 profits are expected to have risen by +7.2% y/y, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to +5.9% y/y from +6.4% in Q2.

The US government shutdown, now in its sixth week, is the longest in history, weighing on market sentiment and the US economy.  The government shutdown is delaying a host of government reports and is having an adverse effect on the US economy. 

Overseas stock markets settled lower on Tuesday.  The Euro Stoxx 50 fell to a 2-week low and closed down -0.34%.  China's Shanghai Composite closed down -0.41%. Japan's Nikkei Stock 225 dropped from a record high and closed down -1.74%.

Interest Rates

December 10-year T-notes (ZNZ5) on Tuesday closed up by +3.5 ticks.  The 10-year T-note yield fell -2.5 bp to 4.085%.  T-note prices moved higher on Tuesday, supported by the slump in stocks, which boosted safe-haven demand for government debt. 

T-note prices have underlying support from the ongoing US government shutdown, which is now the longest in history and could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates. 

European government bond yields moved lower on Tuesday.  The 10-year German bund yield fell -1.3 bp to 2.654%. The 10-year UK gilt yield fell -1.0 bp to 4.425%.

ECB Governing Council member Rehn said, "Growth in the Eurozone remains sluggish but resilient, while inflation risks are two-sided-upward from goods and food prices, and possible supply disruptions; downward from cheaper energy, a stronger euro, and easing wage pressures."  He added that, "In this environment, it's crucial to maintain full flexibility in decision-making and not commit to any specific interest rate path."

ECB Governing Council member Stournaras said the Eurozone's growth prospects "are subject to multiple downside risks," including uncertainty over trade policy and prolonged geopolitical tensions internationally, as well as "political uncertainty in France."

Swaps are discounting a 6% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

The Magnificent Seven stocks were under pressure on Tuesday, weighing on the overall market.  Tesla (TSLA) closed down more than -5% and Nvidia (NVDA) closed down more than -2%.  Also, Alphabet (GOOG) closed down more than -2%, and Amazon.com (AMZN) and Meta Platforms (META) closed down more than -1%.  In addition, Microsoft (MSFT) closed down -0.52%, and Apple (AAPL) bucked the trend and closed up +0.37%. 

Semiconductor stocks fell on Tuesday, adding to the broader market's negative factors.  Micron Technology (MU) closed down more than -6% and Intel (INTC) closed down more than -5%.  Also, ARM Holdings Plc (ARM) and Microchip Technology (MCHP) closed down more than -4%, and Advanced Micro Devices (AMD), ON Semiconductor (ON), Qualcomm (QCOM), GlobalFoundries (GFS), and Lam Research (LRCX) closed down more than -3%.  In addition, NXP Semiconductors NV (NXPI), Marvel Technology (MRVL), and Applied Materials (AMAT) closed down more than -2%.

Crypto stocks retreated on Tuesday as Bitcoin (^BTCUSD) sank more than -6% to a 4.5-month low.  Coinbase Global (COIN), Galaxy Digital (GLXY), Mara Holdings (MARA), Strategy (MSTR), and Riot Platforms (RIOT) all closed down by more than 6%.

Sarepta Therapeutics (SRPT) closed down more than -33% after it said a study of its Amondys 45 and Vyondys 53 on patients with Duchenne muscular dystrophy missed a primary endpoint. 

Norwegian Cruise Line Holdings Ltd (NCLH) closed down more than -15% to lead losers in the S&P 500 and cruise line stocks lower after reporting Q3 revenue of $2.94 billion, below the consensus of $3.02 billion.  Also, Carnival (CCL) closed down more than -9% and Royal Caribbean Cruises Ltd (RCL) closed down more than -7%.

Zoetis (ZTS) closed down more than -13% after cutting its full-year revenue estimate to $9.40 billion-$9.48 billion from a previous forecast of $9.45 billion-$9.60 billion, below the consensus of $9.51 billion.

CDW Corp (CDW) closed down more than -8% to lead losers in the Nasdaq 100 after reporting Q3 net sales of $5.74 billion, weaker than the consensus of $5.76 billion.

Palantir Technologies (PLTR) closed down more than -7% despite reporting better-than-expected Q3 sales, as the stock's price-to-sales ratio rose to 85 —the highest in the S&P 500 —raising concerns about extreme valuations and sparking long liquidation pressures in the stock.

Marathon Petroleum (MPC) closed down more than -6% after reporting Q3 adjusted EPS of $3.01, weaker than the consensus of $3.15.

Uber Technologies (UBER) closed down more than -4% after forecasting Q4 adjusted Ebitda of $2.41 billion to $2.51 billion, the midpoint below the consensus of $2.49 billion.

Expeditors International of Washington (EXPD) closed up more than +10% to lead gainers in the S&P 500 after reporting Q3 revenue of $2.89 billion, above the consensus of $2,75 billion.

Henry Scein (HSIC) closed up more than +10% after reporting Q3 net sales of $3.34 billion, above the consensus of $3.28 billion.

Sanmina (SANM) closed up more than +16% after reporting Q4 net sales of $2.10 billion, stronger than the consensus of $2.06 billion. 

Yum!  Brands (YUM) closed up more than +7% after reporting Q3 adjusted EPS of $1.58, above the consensus of $1.48. 

Waters Corp (WAT) closed up more than +6% after reporting Q3 adjusted EPS of $3.40, better than the consensus of $3.21, and raising its full-year adjusted EPS estimate to $13.05-$13.15 from a previous estimate of $12.95-$13.05. 

Fabrinet (FN) closed up more than +4% after reporting Q1 revenue of $978.1 million, above the consensus of $933.6 million.

Whitestone REIT (WSR) closed up more than +4% after MCB Real Estate is said to be making a renewed push to acquire the company and may make a $15.20-per share offer as soon as today.

Global Payments (GPN) closed up more than +4% after reporting Q3 adjusted net revenue of $2.43 billion, better than the consensus of $2.42 billion.

Marriott International (MAR) closed up more than +3% to lead gainers in the Nasdaq 100 after reporting Q3 adjusted EPS of $2.47, stronger than the consensus of $2.39.

Earnings Reports(11/5/2025)

Albemarle Corp (ALB), Allstate Corp/The (ALL), Amcor PLC (AMCR), Ameren Corp (AEE), APA Corp (APA), AppLovin Corp (APP), ARM Holdings PLC (ARM), Atmos Energy Corp (ATO), Bio-Techne Corp (TECH), Bunge Global SA (BG), Cencora Inc (COR), CF Industries Holdings Inc (CF), Charles River Laboratories Int (CRL), Corpay Inc (CPAY), Devon Energy Corp (DVN), DoorDash Inc (DASH), Emerson Electric Co (EMR), Fair Isaac Corp (FICO), Fidelity National Information (FIS), Fortinet Inc (FTNT), Host Hotels & Resorts Inc (HST), Humana Inc (HUM), Iron Mountain Inc (IRM), Johnson Controls International (JCI), McDonald's Corp (MCD), McKesson Corp (MCK), MetLife Inc (MET), Paycom Software Inc (PAYC), PPL Corp (PPL), PTC Inc (PTC), QUALCOMM Inc (QCOM), Robinhood Markets Inc (HOOD), Sempra (SRE), STERIS PLC (STE), Targa Resources Corp (TRGP), Texas Pacific Land Corp (TPL), TKO Group Holdings Inc (TKO), Trimble Inc (TRMB), Zimmer Biomet Holdings Inc (ZBH).