AI bubble concerns persist amid employment worries… Nasdaq down 1.9% [New York market briefing]

The three major U.S. stock indices all fell. With concerns about an artificial intelligence (AI) bubble persisting, news that big tech companies have carried out large-scale layoffs weighed on investor sentiment.

On the 6th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 46,912.3, down 398.7 points (0.84%) from the previous trading day. The S&P 500 index fell 75.97 points (1.12%) to 6,720.32, and the Nasdaq Composite plungedin 445.8 points (1.9%) to close at 23,053.99.

All sectors except energy and health care declined. Consumer discretionary plunged 2.5%.

Investor sentiment was dampened by reports that U.S. companies cut jobs in October. According to a layoff report released by Challenger, Gray & Christmas (CG&C), U.S. companies' October totals were 153,074. That represents a 183% increase from September and a 175% increase year on year. It is the highest level for October since 2003. On a monthly layoff scale, it is the highest since Q4 2008.

Andrew Challenger, senior vice president at CG&C, said, "As in 2003, disruptive technology is changing the environment," adding, "Announcing layoffs in the fourth quarter is particularly undesirable when job creation has reached multi-year lows."

The impact appears to be large given that major big tech firms have announced successive large-scale layoffs. Amazon said late last month it would cut 14,000 jobs, and Microsoft announced plans in July to cut 9,000 jobs. Layoff waves have spread to other industries such as UPS and Target, raising concerns about a slowdown in consumption ahead of the year-end.

Mike Musio, CEO of FBB Capital Partners, said, "From a valuation perspective, many major tech stocks were priced excessively high," adding, "If the government reopens economic activity and subsequent economic indicators show that consumers 'are not truly dead,' a typical year-end rally could appear."

Concerns about AI remain. Sarah Friar, chief financial officer (CFO) of OpenAI, said the day before that she wanted to create a new financial structure to build AI infrastructure that would combine private equity, banks, and final guarantees from the federal government. This was interpreted as asking the government to guarantee OpenAI's business and sparked controversy.

But Davis Sacks, the White House's senior advisor (czar) for AI and cryptocurrency policy, wrote on his X account that day, "There will be no federal bailout for the AI industry," emphasizing, "There are at least five major cutting-edge model companies in the U.S., and even if one fails, another company will take its place."

All mega tech companies with market capitalizations over $1 trillion, except Alphabet, fell. Apple also held up relatively well, down 0.14%. Apple and Alphabet, which have solid business structures and cash flows, appear to be acting as "safe assets" amid AI bubble concerns. Tesla, however, fell 3.5%. Amazon also dropped 2.86%.

On the day, Google announced a new AI chip designed for AI inference models called 'Ironwood.' Google plans to take market share in the AI chip market dominated by Nvidia with Ironwood. After Google unveiled Ironwood, Nvidia fell 3.65% and AMD plunged 7.27%, among a broad sell-off in AI- and semiconductor-related stocks.

According to the CME FedWatch Tool, the probability implied by federal funds futures that the benchmark rate will remain unchanged through December fell to 29.1%. It had been priced at 38% near the previous day's close.

The CBOE Volatility Index (VIX) rose 1.49 points (8.27%) from the previous session to 19.5.

Jin Young-gi, Hankyung.com reporter young71@hankyung.com