Global stock markets opened cautiously this week, with major indices struggling to maintain early gains amidst significant pressure from the artificial intelligence (AI) sector. Investors adopted a watchful stance ahead of a crucial economic calendar, which includes the eagerly anticipated November jobs report. By the close of trading, the blue-chip Dow Jones Industrial Average registered a modest decline of 0.09% at 48,416, while the broader S&P 500 fell 0.2% to 6,816. The tech-heavy Nasdaq Composite experienced a more pronounced dip, closing 0.6% lower at 23,057, reflecting underlying market anxieties.

The recent downturn in AI-related stocks emerged as a primary driver of market weakness. Mega-cap technology giants Oracle and Broadcom, prominent players in the AI infrastructure space, continued their post-earnings slides, with Oracle shedding 2.7% and Broadcom declining by 5.6%. This trend highlights growing concerns among market participants regarding the sustainability of the sector’s rapid valuation growth. Many analysts question whether the substantial investments committed to AI infrastructure will yield commensurate profitability.

José Torres, a senior economist at Interactive Brokers, articulated these mounting anxieties. He stated, “Worries are mounting that the significant investments committed to the modern technology’s infrastructure and the associated profitability may pale in comparison to the remarkable valuation expansion that has occurred among AI-related companies.” Such sentiments have prompted a reallocation of capital, with investors shifting funds towards more value-oriented segments of the market. Financial and industrial stocks have seen renewed interest as a result of this pivot.

In stark contrast to the tech sector’s struggles, healthcare stocks demonstrated notable resilience and outperformed the broader market. Pharmaceutical giants Bristol Myers Squibb and Eli Lilly finished near the top of the S&P 500, recording gains of 3.6% and 3.4% respectively. This divergence underscores a broader market rotation, as investors seek stability and established earnings potential in sectors less exposed to the speculative pressures currently impacting high-growth technology names.

Adding to the market’s negative sentiment, shares of ServiceNow, a leading AI-powered enterprise platform, plunged by 11.5%, making it the worst performer within the S&P 500. This sharp decline followed weekend reports from Bloomberg indicating the company was in discussions to acquire cybersecurity startup Armis for an estimated $7 billion. Simultaneously, KeyBanc downgraded ServiceNow’s stock from “Sector Weight” (Neutral) to “Underweight” (Sell), further exacerbating investor concerns.

KeyBanc analyst Jackson Ader cited signs within IT employment data that suggested a potential “Death of SaaS” narrative could impact ServiceNow in the coming quarters, challenging the long-term growth prospects for software-as-a-service providers. Despite this specific downgrade, the broader Wall Street consensus for ServiceNow remains largely optimistic. Of 46 analysts tracked by S&P Global Market Intelligence, 32 maintain a “Strong Buy” rating, nine advise “Buy,” and four recommend “Hold,” with only one “Sell” rating, pointing to a consensus “Strong Buy.” ServiceNow is also set to complete a 5-for-1 stock split later in the week.

The market’s cautious mood is further amplified by a packed schedule of economic reports, commencing with the highly anticipated November jobs report. This critical data release, delayed due to a record-long government shutdown, is expected to heavily influence the Federal Reserve’s future monetary policy decisions regarding interest rate adjustments. Earlier in the week, the Empire State Manufacturing Index, a key indicator of business activity in New York state, came in significantly lower than economists’ projections, presenting a mixed-to-weak picture of the regional economy.

Federal Reserve officials have consistently stressed that their decisions on potential rate cuts will be data-dependent, placing immense scrutiny on this week’s economic releases. Chris Larkin, managing director of Trading and Investing at ETRADE from Morgan Stanley, observed, “With the Fed still appearing to be more focused on labor-market weakness than inflation, we’re likely facing a ‘bad news is good’ scenario for the jobs report.” This suggests that weaker employment figures might paradoxically be viewed positively by investors, as they could prompt the Fed to implement rate cuts sooner.

Barclays economists offered specific forecasts for the upcoming jobs data, predicting that October payrolls, which will be included in the report, would show no change from September. They further projected the addition of approximately 50,000 new jobs in November, with the unemployment rate potentially edging up to 4.5%. Following the jobs report, Wall Street will turn its attention to the November Consumer Price Index (CPI) report on Thursday. Barclays economist Pooja Sriram cautioned that this inflation gauge might not provide a “clean” read due to missing October data, adding another layer of uncertainty to the economic outlook.

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Keywords: stock market, AI stocks, November jobs report, economic calendar, ServiceNow stock, Federal Reserve, interest rates, market valuation concerns