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Defensives Lead While Technology Takes the Loss
Healthcare, industrials and utilities led the latest session while technology fell 0.69%, and strategists at Morgan Stanley and Citi both counsel patience on the AI trade.
The sector tape in our data is a rotation out of technology. Healthcare led with a gain of 2.01%, followed by industrials at 1.65%, utilities at 1.51% and energy at 1.26%. Technology was the only sector in the red, down 0.69%, and communication services barely moved at 0.33%. Funds moved toward businesses with defined cash flows and away from the AI trade, which is consistent with the week's headlines about data-centre spending and the Nvidia inquiry. The Dow fell 0.46% to 51,285.73 in the same data.
The index prints do not match the sector tape neatly. The Nasdaq rose 1.09% to 24,579.42 and the S&P 500 added 0.31% to 7,376.86, even though technology, the heaviest sector in both, fell. We cannot reconcile that from the data we hold, and readers should not rely on any single measure. A Seeking Alpha piece dated November 8 says Thursday's 4.4% drop took the S&P 500 to 7,354 and technology below a sell line, so the index sits near the bottom of a violent week.
Strategists are split on what comes next. Morgan Stanley's chief strategist, per MarketWatch, says the correction is entering its final phase but advises waiting before buying the dip, and expects the S&P 500 could reach the lower end of the bank's downside target in coming weeks. Citi's global strategy team says tech positioning needs to get cleaner before it reverts to overweight. State Street's Dan Farley told CNBC the AI selling may not be done, though he does not expect it to derail the investment cycle.
The skeptical read is that two of the three most-cited views are advice to wait, and none is a forecast with a date. Strategists who say the pullback is healthy have no more evidence than those who say the bear market has started. The useful fact is that defensive sectors rose while the AI complex fell, which shows money rotating rather than leaving. Equity futures were steady premarket, per the Wall Street Journal, even as Nvidia slid.
The calendar is the test. October consumer prices are due Tuesday, and CoreWeave, Cisco and Applied Materials report this week, with Nebius also reporting, per Cramer. Those results will say whether AI infrastructure demand is intact. Last week's election results, which Barron's describes as bringing in a Democratic-controlled Congress, add a policy question over AI spending and upcoming AI IPOs, which analysts say face a larger test after the midterms.
More from the Markets desk
Asia Rebounds After Official Intervention
Asian equities mostly rebounded on Monday, though the Wall Street Journal describes sentiment as fragile. Brutal losses the previous week had prompted both South Korean and Taiwanese authorities to intervene to stem declines in their local markets. Both economies are heavily weighted toward semiconductors, which is the link between Asian equities and the AI trade that has been pressuring Wall Street.
Japan's Nikkei rose 1.7%, led by machinery and financial stocks, rebounding from Friday's selloff after solid U.S. jobs data. The Nikkei is up 25% year to date as of November 2, per a Seeking Alpha watchlist, which leaves it the leader among nine indexes. A market up that far is a candidate for sharp reversals, and official support in Korea and Taiwan suggests the authorities fear a disorderly fall.
Citi Says Sit Out Global Tech
Citi's global strategy team has told investors it is better to sit out the global tech trade until sentiment in AI improves. Despite recent weakness, the team thinks positioning needs to be cleaner before it would return to its previous overweight. That is a statement about crowding rather than valuation: the concern is that too many funds still hold the same stocks, so selling has not run its course.
The CFTC data gives some support. Speculative net positions in the Nasdaq 100 stood at 42.9 in the latest report, down from 48.9... prior 48.8, so speculators trimmed their longs. S&P 500 positioning is still net short at -129.4, though less so than the prior -134.4. The data is for the week to November 6 and predates Monday's Nvidia news, so it may understate what has changed.
Crypto Slides To Two-Month Lows
Cryptocurrencies slid to two-month lows after the U.S. midterms, per Reuters, and the bitcoin market has also picked up a new source of uncertainty: the Nvidia affair. A Bitcoin.com piece dated November 9 notes that bitcoin has been moving in tandem with AI stocks, so a drop in Nvidia is a reason to sell a coin that has no earnings.
Regulation moved the other way. The Treasury's FinCEN and the Federal Reserve withdrew proposals that would have expanded reporting requirements around cryptocurrency transactions, according to PYMNTS on November 8. The withdrawal removes a compliance burden for the industry, but it did not lift prices. The correlation with equities shows crypto is trading as a risk asset, not as a hedge against them.
Single-Stock Bets Start A Turf War
A group backed by Citadel Securities and Cboe is suing over the approval of single-stock products modelled on a bet that originated in the crypto world, the Wall Street Journal reported on November 8. The dispute is a turf fight between established exchanges and market makers on one side and the new venues on the other, over who may list and clear these contracts and under what rules.
The stakes are volume. If single-stock bets of this kind trade offshore-style outside the established exchanges, the incumbents lose fees and the flow that market makers like Citadel Securities depend on. The dossier gives no court date or the product's name, so the outcome is unknown. The point for traders is that a market already running hot on leveraged retail products may get one more instrument.
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