On the early morning of November 7, Beijing time, US stocks closed lower on Thursday. Stocks that previously benefited from artificial intelligence (AI) trading faced another round of sell-offs as concerns grew over their staggering valuations. Traders also kept an eye on developments in Washington, where the US Supreme Court questioned the legality of former President Trump's tariffs, with a potential ruling that could reverse his tariff policies.

The Dow Jones Industrial Average fell by 398.70 points, or 0.84%, to close at 46,912.30. The Nasdaq Composite dropped 445.80 points, or 1.90%, to 23,053.99, while the S&P 500 declined by 75.97 points, or 1.12%, to 6,720.32.

The Nasdaq 100 has fallen more than 2% since last Friday's close and is on track for its worst weekly performance since early April. The biggest downward pressure came from Nvidia, Microsoft, Palantir Technologies, Broadcom, and Advanced Micro Devices (AMD).

AI-related stocks have been underperforming since the beginning of November, and Thursday's trading session was no exception. Chipmaker Qualcomm saw its shares drop 3% after reporting better-than-expected quarterly results, as it indicated potential loss of future business with Apple.

AI chip giant Nvidia closed down 3.7%, marking its third consecutive day of losses, with a cumulative decline exceeding 7% over the period. AMD, which had a strong performance on Wednesday, plunged about 7.3% at the close, while Palantir and Oracle fell 6.8% and 2.6%, respectively. Other AI favorites, including Meta Platforms, also saw declines.

Mike Mussio, President of FBB Capital Partners, commented, "From a valuation perspective, many of these stocks are overpriced, with expectations built on overly optimistic future projections. This has created a divergence in the market: companies that exceed earnings expectations and raise guidance versus those that may beat revenue estimates but provide weak guidance on linear profits or operating margins. That’s the difference between some companies posting double-digit earnings growth and others seeing double-digit declines—there’s not much in between."

Concerns over labor market conditions further weighed on US stocks on Thursday, as October saw a significant increase in announced job cuts. According to Challenger, Gray & Christmas, total layoffs for the month exceeded 153,000—nearly triple September's figure and 175% higher than the same period last year. This marks the highest October layoff count in 22 years, with 2023 shaping up to be the worst year for job cuts since 2009.

These figures suddenly paint an unstable picture for the US economy, especially given the lack of economic reports due to the ongoing government shutdown—now the longest in history at over a month.

Mussio added, "We’re starting to see sporadic economic data unrelated to the government, and it’s not particularly encouraging. All these factors are setting the stage for some market weakness." However, he noted that this doesn’t necessarily signal "the start of a major downturn or anything like that."

The investment manager suggested that if the government reopens and subsequent data show consumers "haven’t actually lost momentum" heading into the holiday season, US stocks could see a typical year-end rally.

AI-related stocks rebounded on Wednesday after earlier valuation concerns, briefly lifting major indices. Semiconductor company AMD rose over 2% in the previous session after reporting better-than-expected Q3 results, boosting other AI stocks like Broadcom and Micron Technology. Oracle also recovered some of its recent losses.

Despite the brief AI-driven recovery, the three major US indices remain in negative territory for the week. Most of the losses occurred on Tuesday when Palantir plunged about 8% despite strong quarterly results, dragging the Nasdaq down 2% for the day. Tuesday’s decline contrasted with Monday’s gains, which were driven by Amazon and other AI stocks.

Investors also monitored developments in Washington as the Supreme Court heard arguments for and against the Trump administration’s tariff policies. Following sharp questioning from justices on Wednesday, expectations grew that the court may rule against Trump’s aggressive trade policies. A potential reversal of presidential tariffs could lift US stocks.

A final Supreme Court decision could undermine one of Trump’s signature economic policies from his second term and significantly weaken his foreign policy agenda. A ruling could come as early as year-end, presenting a major legal test for the former president.

During a nearly three-hour hearing in Washington on Wednesday (November 5), arguments centered on whether Trump overstepped his authority by invoking the 1977 International Emergency Economic Powers Act (IEEPA), which grants the president powers to address "unusual and extraordinary threats" to national security, foreign policy, or the economy. While past presidents have used the act for sanctions or embargoes, Trump was the first to employ it for tariffs.