Wall Street enters a high-stakes week following a sharp selloff on Friday. The Nasdaq fell 2.86%, marking its worst day since early June, while the S&P 500 lost 1.82%. Analysts warn that upcoming midterms, artificial intelligence spending concerns, and key earnings reports could trigger further market volatility.
Friday's market downturn was largely triggered by concerns over artificial intelligence cash burn. Intel shares fell nearly 29%, Amazon reported disappointing results, and Alphabet previously lost about $500 billion in market value. These developments fueled doubts regarding whether massive infrastructure spending on artificial intelligence will yield near-term returns. Additionally, a report indicated that Anthropic could receive a junk rating following its initial public offering, deepening worries about borrowing within the industry.
Market sentiment was further strained by a record $6.3 billion Binance hack and elevated oil prices driven by Middle East tensions, which maintained pressure on inflation expectations. According to The Kobeissi Letter, the Nasdaq's decline coincided with rising market-implied odds of a Democratic midterm sweep, which surged from 65% to 72%.
Financial analysts have shared differing perspectives on how far equities might fall. Morgan Stanley’s Mike Wilson suggested that potential clearing events could push the S&P 500 about 9% below its record toward 7,100, though he views the dip as a potential buying opportunity and maintains an 8,000 year-end target. Bank of America’s Michael Hartnett remains tactically risk-off until mid-November, anticipating additional declines as political and artificial intelligence risks are priced in.
Economist Peter Schiff warned of a possible market crash ahead of the November 3 elections, citing expensive valuations, rising yields, sticky inflation, and a soft labor market. In a more extreme scenario, TS Lombard’s Dario Perkins outlined an artificial intelligence crash model featuring a potential S&P 500 decline of at least 30%, which would erase about $20 trillion in value, though he did not label the current market movement as the definitive trigger.
The upcoming week features several major catalysts, including midterm elections that could reshape artificial intelligence regulation, earnings reports from Apple, AMD, and Palantir, and the release of Friday's jobs report.
