Dow Up 1%, Nasdaq Flat: Wall Street Turns From AI Stocks to Earnings and Balance Sheets — BigGo Finance

On October 20, the New York stock market experienced a shift in investment focus, moving away from artificial intelligence (AI) stocks and spreading into sectors such as healthcare, industrials, and small-cap stocks. This change led to mixed results across major indexes. The Dow Jones Industrial Average ended the day at 52,495.88, gaining 529.85 points, or 1.02%, compared to the prior session. Meanwhile, the S&P 500 saw a modest rise of 0.28%, closing at 7,712.57, while the Nasdaq Composite experienced a slight decline of 0.02%, finishing at 26,424.82. The Philadelphia Semiconductor Index (SOX) also dropped, ending down 0.29% at 11,283.81, indicating that semiconductor stocks did not participate in the day's rally.

Despite the mixed performance of the major indexes, market breadth was notably stronger, with over 400 companies within the S&P 500 advancing. The small-cap Russell 2000 index surged by 1.75%, marking its largest single-day gain in nearly two months. However, the index still remained below its 200-day moving average for the sixth consecutive session, the longest such stretch in about a year, although it has increased approximately 12% year to date.

Investor sentiment was bolstered by declining crude oil prices and corporate earnings reports. Amid ongoing tensions in the Middle East, oil prices retreated from earlier gains as discussions regarding potential U.S.-Iran talks surfaced. West Texas Intermediate (WTI) crude for November delivery fell by 1.8% to $101.79 per barrel, while Brent crude for December dropped 0.7% to $108.79. The easing of oil prices contributed to a reduction in inflation concerns, leading to a 3 basis point decrease in the yield on the 10-year U.S. Treasury note, which settled at 5.11%. Additionally, the U.S. Census Bureau reported a 5.2% decline in September housing starts from the previous month, totaling an annualized rate of 1.221 million units, which was below the market estimate of 1.305 million and represented the lowest level since May. This weak housing data further contributed to lowering long-term yields.

However, reports suggesting that a peace deal between the U.S. and Iran was imminent were not substantiated, as diplomats involved in the negotiations indicated that discussions were ongoing and that claims of an impending agreement were overstated.

In terms of sector performance, healthcare stood out, achieving a new record high, driven by strong performances from companies such as Eli Lilly, UnitedHealth, Merck, Johnson & Johnson, and Amgen. Shares of Moderna also climbed to their highest levels since 2022. Defensive sectors like real estate and utilities also saw gains exceeding 1%.

Individual earnings reports highlighted the divergence in sector performance. 3M's stock surged over 5% after it reported adjusted earnings per share of $2.50, surpassing the market expectation of $2.38, along with an upgraded full-year profit outlook. Although its revenue of $6.6 billion was slightly below forecasts, the announcement of an expanded partnership with Amazon for data centers was seen positively. Conversely, defense contractor Northrop Grumman's stock rose more than 4% following better-than-expected results. General Motors (GM) faced a decline of 6.8%, despite reporting third-quarter adjusted earnings per share of $3.70 that exceeded market expectations, alongside revenue of $50.02 billion that also surpassed forecasts. GM's guidance for a midpoint full-year adjusted EPS of $13.25 fell short of the market estimate of $13.41, contributing to the stock's drop. The company also announced a $20 billion share buyback plan on the same day.

Tech stocks appeared to pause after a previous rebound, as concerns about the substantial capital investments in AI infrastructure and the associated debt burdens weighed on the market. Investors are questioning whether companies investing heavily in data centers and semiconductors can achieve profitability and continue to secure funding in a high-interest-rate environment.

An example of the cautious sentiment surrounding AI stocks is CoreWeave, an AI cloud company, whose shares have dropped over 25% in the past week. On October 20, it saw a slight increase of 1.62% to $62.11 after hitting a 17-month low earlier in the day. Despite a recent upgrade from Goldman Sachs, investor caution persisted, as indicated by CoreWeave's five-year credit default swap (CDS) premium rising above 1,121 basis points, signaling heightened default risk.

In South Korea, AI cloud company Elice experienced a rough debut, closing at 61,500 won (approximately $46) on its first trading day, down 32.04% from its IPO price of 90,500 won (approximately $68). This IPO was the largest on the Kosdaq for the year, raising 201.1 billion won (approximately $151.7 million) and was over 400 times oversubscribed, yet it fell below its IPO price immediately. Analysts noted that concerns regarding high valuations and debt levels of AI infrastructure firms were affecting sentiment in both the South Korean and U.S. markets.

Overall, the day’s trading reflected the ongoing shifts in investment strategies, with experts like Jim Baird, chief investment officer at Plante Moran Financial Advisors, indicating that investors are increasingly skeptical about AI investments and are seeking opportunities outside the technology sector, particularly in healthcare. Meanwhile, Angelo Kourkafas, a strategist at Edward Jones, noted that while AI demand remains strong, the market is evolving towards one that prioritizes company quality and profitability over mere hype.