In Short:
– Stocks fell due to concerns over AI valuations; S&P 500 down 1.2%, Nasdaq down 1.9%.
– Palantir shares dropped 9% despite strong performance, raising questions about sustainability of high valuations.

Stocks fell on Tuesday as investor concerns regarding artificial intelligence valuations impacted major indices.

The S&P 500 declined by 1.2%, and the Nasdaq Composite dropped by 1.9%, while the Dow Jones Industrial Average lost 304 points, equating to a 0.6% decrease.Palantir shares dropped 9%, despite the company’s strong third-quarter performance and positive forecasts attributed to its AI sector growth. The stock has surged over 150% this year, yet trades at over 200 times its forward earnings, leading investors to question whether such valuations can be sustained.

Other tech stocks also faced declines, including Oracle and AMD, which saw drops of 4% and more than 3%, respectively.

Gains in AI stocks have inflated the S&P 500’s price-earnings ratio above 23, raising concerns about stock valuations. Ameriprise market strategist Anthony Saglimbene highlighted potential risks, stating that investors are questioning if future profit growth will support high capital expenditures.

Market Outlook

Comments from executives at Goldman Sachs and Morgan Stanley further added to market worries.

Both firms predicted potential market pullbacks, with drawdowns of 10% to 20% possible within the next two years. Saglimbene noted a narrow market breadth in recent months, suggesting limited alternatives if a downturn occurs in the tech sector.

In Short:
– RBA predicts persistent cost-of-living issues with low chances of interest rate cuts; economy growth expected at 2%.
– Unemployment rose to 4.5%, but is projected to remain steady; inflation is forecasted at 3.7% by next June.

RBA forecasts indicate ongoing cost-of-living struggles and a low likelihood of interest rate cuts. The Reserve Bank’s quarterly Statement on Monetary Policy (SMP) suggests Australia’s economy will grow at around 2% annually, primarily driven by housing investment.

Unemployment rose to 4.5% last month but is expected to remain steady just below this level for the next two years. Some economists challenge this optimism. Productivity is improving more quickly than anticipated but remains relatively low by historical standards.

Inflation, meanwhile, is projected to stay persistently high despite solid growth and stable unemployment. The bank highlighted that last week’s inflation figures were significantly higher than expected, with the annual consumer price rise predicted to reach 3.7% by next June. With wage growth forecasted at only 3%, workers’ purchasing power is expected to decline.

No Rate Cuts

The RBA’s lack of interest rate cut forecasts have led markets to lower their expectations. The cash rate is predicted to bottom out at 3.3% next year, a revision from earlier projections of 2.9%. Many economists believe further cuts are unlikely, with a median expectation for no cuts until late next year.

RBA governor Michele Bullock acknowledged that maintaining the current rate is possible, noting that the RBA may not need to reduce rates significantly as other central banks have.

Competitive banking conditions offer some relief to borrowers, resulting in reduced spreads on variable-rate mortgages. Nonetheless, there are concerns that these spreads could increase as banks aim for higher profitability or as market risk premiums adjust. Australian variable mortgage rates may have reached their lowest point for the foreseeable future.