Stock pullback has investors debating extent of the sell-off

The biggest slump in a month for US stocks is leading investors to question whether long-running concerns over lofty tech valuations, narrow market breadth and economic uncertainty will finally bring an end to the bull run that started in April.

- RITA NAZARETH

Risk assets slid around the world Tuesday, fanned by a chorus of Wall Street executives who warned about a pullback. The S&P 500 Index fell 1.2%, its biggest decline since Oct 10, while a gauge of tech megacaps lost 2.3%. Shares favoured by retail investors tumbled the most since the chaos in April caused by Donald Trump's trade war. Stocks extended losses in Asian trading yesterday.

While there was no single catalyst for the selloff, Palantir Technologies Inc sank 8% even after boosting its outlook, with its bullish Al prospects failing to offset angst its rally has been excessive. Adding to the concerns, hedge fund manager Michael Burry disclosed bearish wagers on the firm and Nvidia Corp.

Nobody needs to look hard to find warnings that stocks look frothy after a record-breaking surge over the past six months pushed valuations to levels associated with exuberance. The S&P 500 is trading at about 23 times forward earnings estimates, above its five-year average of 20. Similarly, the Nasdaq 100 index fetches a multiple of 28 times, versus about 19 at a low in 2022.

"The stock market is ripe for some sort of material pullback over the near-term, no matter where it's going over the intermediate/longer-term," said Matt Maley, chief market strategist at Miller Tabak + Co.

In the wake of Tuesday's selloff, a debate raged over the path forward.

"One concern here is that the leadership has become worryingly narrow, with a handful of mega-cap tech names doing all the heavy lifting, leaving the broader market vulnerable to any wobble in the AI narrative," said Fawad Razaqzada, an analyst at Forex.com.