Stocks Sink On AI Data-Center Slowdown Fears, Employment Report On Tap For This Morning
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Stocks closed sharply lower yesterday, erasing Wednesday's soaring, post-midterm rally.
The tech-heavy Nasdaq took the brunt of the selling, giving up -5.52%. It was one of the largest, single-day, post-midterm, percentage drops. The S&P 500, which is also pretty tech-heavy, fell -4.36%. And the small-cap Russell 2000 was down -4.45%. The Dow, which led the advancers on Wednesday with more than a 3% gain, fell by -3.44% yesterday.
As I mentioned yesterday, the narrative surrounding the tech/AI sell-off, which began on Wednesday, despite the larger market going higher, is concern that there could be new data-center regulation from the incoming political body that could slow down the AI expansion. That sell-off deepened yesterday, and took the rest of the market with it.
The Nasdaq is now in 'correction' territory (down -11.9% from their all-time high close made early last month). The S&P 500 is 'only' down -5.95% from their all-time high close. But that puts them in 'pullback' territory. The Russell 2000 had previously fallen into correction territory last month, then came out of it. But they fell back in yesterday, as they are now -11.0% below their all-time high close from August.
Pullbacks are defined as a decline between -5% and -9.99%, and they happen on average of 3-4 times a year, while corrections are defined as a decline between -10% and -19.99%, and they happen on average of about once a year. They are very common. And every bull market has them.
You typically need a catalyst for those to take place, and the data-center freakout appears to be that catalyst.
But as painful as pullbacks and corrections are, if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell.
I should also point out the seasonal tendencies along with the midterm cycle.
Remember, regardless of politics, stocks typically rally after midterms. Since 1950, between election day and the end of the year, it's higher 68% of the time. And looking out over a 12-month period from midterms, the odds improve even more dramatically with the S&P up every time with an average gain of more than 15%.
That doesn't erase the sting of yesterday. But it's an important perspective nonetheless.
Additionally, the fourth quarter is historically the best quarter of the year. Since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%. So, there's that.
But volatility happens. And here we are.
In other news, this morning we'll get the Employment Situation Report from the Bureau of Labor Statistics (BLS). Nonfarm payrolls are expected to show an increase of 62,000 jobs in October (64K in the private sector and -2K in the public sector). The unemployment rate is forecast to stay the same at 4.2%.
Lots to digest today.
But remember the seasonal and cyclical stats shared up top, regardless of what the market does today.
Best,

, Zacks Investment Research
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