Market reversal erases post-election gains, sparking tech sell-off

The Nasdaq is now in a correction, down approximately 4.5% and 10% from its record high just a month ago. The S&P 500 has fallen about 4%. The sell-off is largely attributed to investor concerns about a potential slowdown in the development of AI data centers, fueled by the election results.

Wednesday’s rally, which initially masked underlying trends, was also bolstered by lower oil prices, initially seen as a sign that the Democratic wave would ease tensions in the Middle East. However, crude prices have since rebounded as traders reassess the implications for the Iran conflict. All 11 S&P 500 sectors are currently in negative territory.

The impact is particularly pronounced in the AI sector, creating a divide between established “hyperscalers” and newer cloud providers. Jim Cramer highlighted that the concerns surrounding data center buildouts are not uniform across all companies. He has indicated that securing financing for growth will likely be more challenging for these newer companies, such as CoreWeave, whose shares have plummeted nearly 9% Thursday and lost over half their value since October 6th. Reports suggest Microsoft is scrutinizing data center projects with these newer providers, and Meta Platforms President Dina Powell McCormick noted that constructing new data centers is becoming more difficult.

Despite the broad market decline, portfolio director Jeff Marks maintains a positive outlook on the established hyperscalers, citing their stronger financial positions and ability to access funding.

The market’s next critical test arrives Friday with the release of the October nonfarm payrolls report. Economists anticipate 65,000 new jobs, a significant increase from September’s disappointing 29,000 additions. The unemployment rate is expected to remain at 4.2%, with average hourly earnings projected to rise by 0.3%. This report will be crucial in gauging the likelihood of further Federal Reserve interest rate hikes, as Chairman Kevin Warsh balances employment and price stability. The probability of a December rate hike has decreased from 83% to 66% following recent bond market activity.