US stocks declined on Tuesday as momentum in the recent market rally faded. The S&P 500 slipped 0.4% to 6,700, while the NASDAQ Composite fell 0.7% and the Dow Jones Industrial Average lost 0.2%. The Russell 2000 Index declined 1%, signaling broader sector weakness.
Oracle’s 5.7% decline weighed on the technology-heavy NASDAQ after reports indicated the company faced challenges in its cloud rental business tied to NVIDIA chips. Tesla also fell ahead of an expected announcement of a lower-priced Model Y.
The retreat followed a 35% surge in the S&P 500 since April, which had lifted indexes to record highs. Analysts noted that profit-taking and stretched valuations in megacap technology firms contributed to the pullback.
Citigroup’s Chris Montagu observed that risks of a market correction have risen, particularly within the NASDAQ. Several market strategists also suggested that recent gains, fueled by optimism surrounding artificial intelligence, could lead to a short period of consolidation.
Bond yields fluctuated as investors assessed remarks from Federal Reserve officials ahead of a $58 billion Treasury auction. The yield on 10-year US Treasuries eased three basis points to 4.13%, while the 2-year and 30-year yields fell slightly to 3.58% and 4.73%, respectively.
Federal Reserve Governor Stephen Miran stated that while tariff-related inflation could emerge, it has not yet materialized, and the central bank does not need to manage long-term rates actively.
The New York Federal Reserve’s latest survey showed inflation expectations for the coming year rose to 3.4% from 3.2% in August. The reading added uncertainty about the Fed’s next policy move, though traders continue to expect a rate cut later this month.
Miran’s comments, alongside weaker labor market indicators, reinforced expectations of a cautious approach from policymakers.
Some major corporate updates affected investors' sentiment. Dell Technologies raised its growth expectations out to 2030 by a factor of two, based on continued demand for AI-related products. IBM to integrate Anthropic's artificial intelligence tools into software solutions. Meanwhile, Constellation Brands reported better-than-expected quarterly results thanks to solid beverage sales and sent its stock higher.
Conversely, the decline of Oracle raised questions about the profitability of AI investments. According to The Information, Oracle was recording lower cloud margins than it had estimated and was also incurring losses on some contracts with NVIDIA. This shift prompted investors to reevaluate the sustainability of the industry's fast-paced, AI-driven profits.
Analysts have pointed to parallels between the current market enthusiasm and the dot-com era, as companies like AMD and Oracle have posted multi-billion-dollar valuation increases tied to AI announcements. Hedge fund manager Paul Tudor Jones compared today’s market conditions to 1999, warning that the mix of exuberance and concentrated gains in a few technology firms could pose risks ahead.
In commodities trading, West Texas Intermediate crude edged up 0.1% to $61.77 per barrel, while spot gold rose 0.6% to $3,984.92 an ounce. Gold’s rally, approaching $4,000, drew attention from Goldman Sachs Vice Chairman Robert Kaplan, who described it as a signal of investor caution amid fiscal and political uncertainty. The Bloomberg Dollar Spot Index gained 0.2%, with the euro, pound, and yen each falling against the US dollar.
Overall, Tuesday’s downturn reflected growing investor caution as the initial euphoria around AI began to fade. This signals a potential shift toward more measured market sentiment in the weeks ahead.