[New York Market Watch]Continued 'AI Bubble' Concerns Weigh on Equities—Dollar Rises, Bonds Mixed

(Seoul=Yonhap Infomax) International Economics Department = On the 18th (U.S. Eastern Time), all three major indices on the New York financial markets closed lower. Persistent concerns over an 'artificial intelligence (AI) bubble,' a downward revision of Home Depot's earnings outlook, and worries over weak U.S. employment data dampened investor sentiment.

U.S. Treasury prices were mixed, with strength in short- and medium-term maturities. Declines in private employment and equities supported Treasuries, but corporate bond issuance and a rebound in international oil prices capped gains.

The U.S. dollar index (DXY) rose for a third consecutive session. Although the dollar faced downward pressure on news of declining private employment, it rebounded as Treasury yields pared losses, ending the day slightly higher.

New York oil prices rebounded after just one session. Reports of Ukrainian attacks on Russian territory heightened geopolitical tensions, reversing earlier losses.

According to ADP, a private employment data provider, preliminary U.S. private payrolls for the four weeks ending on the 1st averaged a decrease of 2,500 jobs per week. While this was an improvement from the previous week's figure (-14,250), it still signals ongoing weakness.

Equity Markets

On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed down 498.50 points, or 1.07%, at 46,091.74.

The S&P 500 fell 55.09 points, or 0.83%, to 6,617.32, while the Nasdaq Composite lost 275.23 points, or 1.21%, to finish at 22,432.85.

Both the Dow Jones and S&P 500 posted their fourth consecutive decline, while the Nasdaq fell for a second straight session.

At the open, risk-off sentiment driven by AI bubble concerns triggered a wave of selling in U.S. equities.

Google CEO Sundar Pichai, when asked whether Google could avoid the fallout from an AI bubble burst, said, "I don't think any company is immune, and that includes Google."

Daniel Pinto, Vice Chairman of JPMorgan Chase, commented on the AI sector, saying, "There will probably be a (valuation) adjustment."

Investor selling was further fueled by Home Depot's earnings outlook and signs of labor market weakness.

Home Depot projected its adjusted earnings per share (EPS) for this year would fall 5% from last year, a deterioration from its previous forecast of a 2% decline.

ADP reported that U.S. private payrolls for the four weeks ending on the 1st averaged a decrease of 2,500 jobs per week, an improvement from the prior week's 14,250 decline but still weak.

Peter Tuz, President of Chase Investment Counsel, said, "We're seeing a fairly steep decline. Home Depot's outlook missed market expectations, and people are uneasy about Nvidia's earnings numbers due tomorrow."

Uncertainty over a potential Federal Reserve rate cut in December also weighed on Wall Street.

David Morrison, Senior Market Analyst at Trade Nation, noted, "Concerns about the tech sector are weighing on stocks, and investors are increasingly pricing out the possibility of another Fed rate cut next month."

According to CME FedWatch, as of 16:12 New York time, the federal funds rate futures market priced in a 50.6% chance of a 25bp Fed rate cut in December, down 16.3 percentage points from 66.9% a week earlier.

Reflecting these factors, the S&P 500 and Nasdaq at one point plunged as much as 1.47% and 2.10%, respectively. The Philadelphia Semiconductor Index, composed of AI and chip-related stocks, tumbled as much as 3.37% intraday.

As the session progressed, retail bargain-hunting helped pare losses.

Steve Sosnick, Chief Strategist at Interactive Brokers, citing company data, said retail investors are showing a willingness to buy stocks on market dips. "On a weekly basis, net buying activity by retail investors has nearly doubled in recent weeks," he added.

However, bargain-hunting was not enough to reverse the market's downward trend.

By sector, energy (+0.61%), healthcare (+0.54%), real estate (+0.36%), consumer staples (+0.15%), and communication services (+0.11%) advanced. In contrast, consumer discretionary (-2.50%), technology (-1.68%), and industrials (-0.48%) lagged.

Nvidia and Microsoft fell 2.81% and 2.70%, respectively. Both companies announced a combined $15 billion investment in AI model developer Anthropic—$10 billion from Nvidia and $5 billion from Microsoft.

Tesla (-1.88%), Amazon (-4.43%), and Palantir Technologies (-2.29%) also retreated.

Alphabet (Alphabet A), Google's parent company, slipped 0.26%, outperforming other major tech stocks after Loop Capital raised its price target to $320.

Apple (-0.01%) avoided a steep decline on news that iPhone 17 sales in China surged 37% year-on-year during the same period.

Home Depot, which lowered its annual earnings outlook, plunged 6.02%.

Lockheed Martin rose 0.84% after Saudi Arabia announced plans to purchase F-35 fighter jets.

The CBOE Volatility Index (VIX) jumped 2.31 points, or 10.32%, to 24.69.

Bond Markets

According to Yonhap Infomax's overseas rates intraday screen (screen number 6532), as of 15:00 New York time, the 10-year Treasury yield was down 1.10bp from the previous day's 15:00 close at 4.1210%.

The 2-year yield, sensitive to monetary policy, fell 2.90bp to 3.5810% over the same period.

The 30-year yield, the longest maturity, rose 0.60bp to 4.7420%.

The yield spread between the 10-year and 2-year widened from 52.20bp to 54.00bp (bull flattening).

Bond yields and prices move inversely.

Overall, the session saw early strength followed by weakness. The impact of the ADP data released early in the session faded by late morning.

Nela Richardson, Chief Economist at ADP, said, "Job creation is slowing, but the share of new hires is rising, suggesting more workers are quitting."

Earlier, the U.S. Bureau of Labor Statistics (BLS) reported that initial jobless claims for the week ended the 18th totaled 232,000. While data for the previous three weeks was not disclosed, the figure was little changed from pre-shutdown levels.

Carl Weinberg, Chief Economist at High Frequency Economics, noted, "This report provides no evidence to support the widely circulated theory that layoffs surged during the government shutdown."

The National Association of Home Builders (NAHB) November Housing Market Index (HMI) rose 1 point to 38, slightly above market expectations of 37.

U.S. equities opened lower amid tech bubble concerns but trimmed losses in the afternoon. The Nasdaq, which at one point plunged more than 2% in the morning, narrowed its decline to 0.3%.

West Texas Intermediate (WTI) crude rebounded intraday as tensions escalated between Russia and Ukraine, leading to a modest uptick in bond market breakeven inflation expectations (BEI).

On the day, nine U.S. investment-grade companies, including Pfizer, tapped the bond market for a total of $12 billion. The previous day, 10 companies including Amazon issued corporate bonds.

The U.S. Treasury will auction $16 billion in 20-year bonds the following day, followed by a $19 billion auction of 10-year Treasury Inflation-Protected Securities (TIPS).

Foreign Exchange Markets

According to Yonhap Infomax (screen number 6411), as of 16:00 New York time, the dollar-yen exchange rate stood at 155.529 yen, up 0.304 yen (0.196%) from the previous New York close of 155.225 yen.

The dollar-yen rose to as high as 155.736 yen in the afternoon session, marking its highest level since early February.

The euro-yen rate climbed 0.210 yen (0.117%) to 180.10 yen from 179.89 yen, hitting a record high for the second consecutive day at 180.31 yen. This means the yen's value against the euro has fallen to its lowest since the euro's launch in 1999.

The euro-dollar rate slipped 0.00080 dollars (0.069%) to 1.15807 dollars from 1.15887 dollars, declining for a third straight session.

The dollar index (DXY) rose 0.038 points (0.038%) to 99.588 from 99.550, after dipping as low as 99.396 before reversing higher.

Early in the day, ADP reported that U.S. private payrolls for the four weeks ending on the 1st averaged a decrease of 2,500 jobs per week, compared to a 14,250 weekly decline in the prior period.

Michael Boutros, Senior Technical Strategist at StoneX, said, "There are now views that the labor market may be weaker than the data suggest, and the market is trying to interpret that. The question is whether this can offset the persistent inflation we're seeing."

The dollar index tracked the rebound in Treasury yields from late morning.

As the dollar strengthened, the euro-dollar rate, which briefly reclaimed the 1.16 level, slipped again. The dollar-yen, after retreating near the 155 level, quickly rebounded.

Juan Perez, Trading Director at Monex USA, noted, "Japan's new prime minister is more aggressive and wants to increase spending, adding to the confusion. As a result, Japan is no longer seen as a safe haven in financial markets. Japan has become a bit more unstable and volatile."

Geopolitical tensions between Russia and Ukraine intensified. Ukraine's General Staff announced via Telegram that it had struck military targets inside Russian territory with U.S.-supplied ATACMS tactical ballistic missiles. The General Staff called this "a significant development demonstrating Ukraine's firm resolve to defend its sovereignty," adding that the use of long-range strike capabilities, including ATACMS, would continue.

The pound-dollar rate fell 0.00082 dollars (0.062%) to 1.31466 dollars. The offshore dollar-yuan (CNH) rate rose 0.00120 yuan (0.017%) to 7.1100 yuan.

Oil Markets

On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude rose $0.83 (1.39%) to settle at $60.74 per barrel, reclaiming the $60 mark after just one session.

WTI at one point fell nearly 1% to the $59.30 range before rebounding late in the session.

Ukraine's General Staff announced via Telegram that it had struck military targets inside Russian territory with U.S.-supplied ATACMS tactical ballistic missiles. The General Staff called this "a significant development demonstrating Ukraine's firm resolve to defend its sovereignty," adding that the use of long-range strike capabilities, including ATACMS, would continue.

Local Ukrainian media outlet Kyiv Independent reported that while it was widely believed Ukraine fired ATACMS into Russian territory on November 19, 2024, this was the first official confirmation from the General Staff.

Ukraine has recently intensified its offensive against Russia, including drone attacks on Novorossiysk, a key Russian Black Sea oil export port.

European Union High Representative for Foreign Affairs and Security Policy Kaja Kallas warned that recent Russian attacks on the EU, including a railway explosion in Poland over the weekend, should be considered acts of terrorism.

In an interview with Bloomberg, Kallas said, "These acts of sabotage that they are organizing on the territory of several of our countries are very, very serious."

Over the weekend, an explosion occurred on a key railway in Poland used to transport weapons and aid to Ukraine. Polish Prime Minister Donald Tusk told the Polish parliament that two Ukrainians recruited by Russian intelligence were believed to be responsible.

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