U.S. stocks showed mixed performance in early trading on Tuesday, with the Dow Jones Industrial Average rising 0.5% while the Nasdaq Composite fell 0.6%. Nvidia shares plunged 6.6% amid reports that Meta Platforms is considering a multibillion-dollar purchase of Alphabet's AI chips. The ADP employment report indicated further softening in the U.S. labor market, prompting Goldman Sachs to predict a Fed rate cut in December followed by two additional 25-basis-point reductions in 2026.

The Dow gained 207.41 points (0.45%) to 46,655.68, while the Nasdaq dropped 133.77 points (0.58%) to 22,738.24. The S&P 500 edged down 6.05 points (0.09%) to 6,699.07.

Nvidia's decline came as Alphabet's Class A shares rose on news of Meta's potential AI chip procurement. The previous trading session saw strong gains across major indices, with the S&P 500 climbing 1.6% and the Nasdaq surging 2.7%—its best single-day performance since May 12—as tech stocks rebounded from a challenging month. The Dow added over 200 points (0.4%).

Alphabet emerged as Monday's standout, soaring 6.3% to a record high, while chipmaker Broadcom jumped more than 11%, becoming the S&P 500's top performer. Investors flocked to both companies amid reports of their collaboration in high-performance specialized chips.

Despite the recent rebound from last week's sell-off, all three major U.S. indices remain on track for monthly losses. While AI stocks have driven much of this year's gains, investors are questioning tech valuations and monitoring whether the year-end rally will continue or reverse.

Month-to-date, the S&P 500 has fallen about 2%, the Nasdaq has declined 3.6%, and the Dow has dropped 2.3%. Abby Yoder, U.S. equity strategist at JPMorgan Private Bank, noted significant liquidation activity beginning in late October as market liquidity tightened.

Yoder added, "Amid technical volatility in AI and tech-related names, the AI narrative and spending story still provide a fundamentally solid backdrop. This sets up a favorable foundation for year-end performance, though market sentiment may grow more cautious."

Traders continue monitoring developments that could influence the Fed's policy decisions. According to CME's FedWatch Tool, markets now price in over an 80% chance of a 25-basis-point rate cut in December—a probability that surged after New York Fed President John Williams suggested room for near-term easing last Friday.

San Francisco Fed President Mary Daly echoed this stance Monday, citing labor market concerns as justification for rate cuts.

Tuesday's ADP report showed accelerating job losses in the U.S. private sector over the past four weeks, with employers cutting an average of 13,500 positions weekly—a sharp deterioration from the prior week's 2,500-job reduction.

With government shutdowns delaying official data releases, alternative metrics from ADP and others are filling information gaps. Key reports like nonfarm payrolls won't be available until December, leaving Fed policymakers with limited data ahead of their December 9-10 meeting.

Goldman Sachs Chief Economist Jan Hatzius noted in a client report, "Given the December 16 jobs report and December 18 CPI release, there's virtually nothing in the calendar to prevent a December 10 rate cut." He expects alternative indicators to show renewed October job losses when data normalizes.

Goldman anticipates the Fed will cut rates in December, followed by two additional 25-basis-point reductions in 2026.