The American stock market is falling today, with the Dow Jones, S&P 500, and Nasdaq 100 futures falling by 0.65%, 1%, and 1.28%, respectively. This article explores some of the top reasons why these indices are falling today.
S&P 500 and Dow Jones futures fall after Palantir earnings
The main reason why the futures tied to the Nasdaq 100, Dow Jones, and S&P 500 indices retreated is Palantir. In a statement, the company said that its revenue jumped by 63% in Q2 to over $1.18 billion.
Palantir’s results were driven by a 77% jump in US revenue, which was fueled by the commercial segment, which hit $397 million. This is a notable thing now that the company has proven that it is not just a mere defense contractor.
The results demonstrated that there was strong demand for its software from corporations. It closed 204 deals of at least $1 million and 53 deals of at least $10 million.
Most notably, Palantir’s management upgraded its forward guidance, noting that its revenue will be between $4.3 billion and $4.4 billion this year.
Therefore, Palantir’s stock price dropped as the forward guidance was smaller than expected. However, its guidance is always conservative, meaning that it will likely do better than expected.
Palantir stock also plunged because of its high valuation, with its price-to-earnings (P/E) multiples jumping to over 300, which is higher than the S&P 500 Index average of 23. In a note, an analyst said:
“On Palantir, there’s been quite a lot of ‘sell-on-the-news,’ particularly for stocks that had outperformed prior to their earnings. When you have lofty valuations, it’s really not surprising to see harsh market price action.”
Read more: Is the overvalued Palantir stock a buy or sell ahead of earnings?
Fears of an AI bubble and bankers’ warnings
The S&P 500, Dow Jones, and Nasdaq 100 dropped because of the lingering fears that we are in an AI bubble as the Palantir stock price dived.
Investors are concerned that it will take years or decades for companies to recoup the ongoing investments in the AI industry. OpenAI, which has made deals worth over $1 trillion, struck another $38 billion with Amazon on Monday.
The next earnings to watch this week will be AMD, which has emerged as one of the top players in the industry. Analysts expect its results to show that its revenue growth continued in the third quarter. A disappointing result from AMD would negatively impact the broader stock market.
Meanwhile, top analysts and executives are warning about a steep pullback in the stock market. The most recent analysts to share these views were Goldman Sachs’ David Solomon, and Morgan Stanley’s Ted Pick. A Bloomberg analyst said:
“Investors appear to be needing fresh signals to restore faith in the bull market, which began stalling last week. Indeed, they are concerned that market leadership is concentrated.”
Meanwhile, investors are waiting for the upcoming developments at the Supreme Court, which will hear submissions on Donald Trump’s tariffs.
The SCOTUS will not deliver its ruling on Wednesday. Nonetheless, it will be easy to predict its ruling based on the judges’ questions during the session.
Still, this retreat does not mean that it is the start of a bear market, as investors have always bought the dip. As such, it is likely that the Dow Jones and S&P 500 Indices will bounce back.
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