Stocks recovered from AI bubble panic on upbeat ADP & PMI data

 

·         Earlier, Wall Street futures slid on the growing concern of an AI bubble, Trump’s political & policy (including tariffs) uncertainty

·         Latest ADP Private Payroll jobs data (+42K) for Oct’25 translates 3MRA to +10K; Fed may be on hold in Dec’25

·         Better-than-expected ISM and S&P Global servicer PMI data also helped to ease recession fears

On a night when federal workers braced for a midnight government shutdown, Democrats delivered a sweeping victory in the 2025 off-year elections. From New Jersey’s governor’s mansion to the mayor’s office in New York City, the party won every major contest, signaling a sharp rebuke to President Donald Trump’s early-term agenda and exposing the fragility of his narrow Republican control of Washington. What began as a routine off-year cycle has now become a pivotal preview of the 2026 midterms—and a defining challenge to Trump’s second presidency.

A Clean Sweep in Blue Territory

The results were decisive. In New Jersey, Mikie Sherrill won the governorship by nearly seven points, securing a Democratic hold on a state that has long been a bellwether for suburban sentiment. In Virginia, Abigail Spanberger flipped the executive mansion with a four-point margin, capitalizing on federal worker frustration in a state that hosts hundreds of thousands of government employees. And in New York City, Zohran Mamdani—a 34-year-old democratic socialist—won the mayoral race by more than eleven points, the largest margin in four decades.

Turnout told the story. New York City saw 68 percent participation, the highest since 1989, driven by record engagement among young voters and communities of color (immigrants). Exit polls revealed a clear message: cost of living topped the list of concerns at 61 percent, followed by government dysfunction and Trump’s bellicose policies from tariffs to immigration & deportations, including harsh treatments by ICE.

California’s Proposition 50, which passed with 58 percent support, added another layer of consequence. The measure redraws congressional districts to create five Democratic-leaning seats—a direct boost to the party’s chances of retaking the House in 2026.

The Rise and Fall of DOGE-Costs Trump's middle-class vote banks

When Trump took office in January 2025, he appointed Elon Musk to co-lead DOGE with Vivek Ramaswamy. The mission: cut two trillion dollars in federal spending. Musk delivered results—slashing USAID staff from 13,000 to under 300, terminating half a trillion dollars in contracts, and embedding tech allies across agencies. But lawsuits, congressional resistance, and a public clash with Trump over a May spending bill forced Musk’s departure after just 130 days as a special government employee. He retains a White House office and informal influence, but DOGE now operates quietly, a symbol of bold intent thwarted by political reality.

Zohran Mamdani and the Future of New York: Wall Street vs Main Street?

No result carried more national weight than Mamdani’s victory in New York City. As the city’s first Muslim and South Asian mayor—and the youngest since 1892—he enters office with a transformative agenda focused on affordability, public investment, and wealth redistribution.

His flagship policies include freezing rents for over two million stabilized units, building 200,000 units of union-constructed affordable housing, launching free universal childcare, eliminating bus fares, and establishing city-run grocery stores to compete with private chains. Funding would come from a two-percent tax on millionaires and an increase in the corporate rate to 11.5 percent.

Wall Street responded immediately. Real estate investment trusts like SL Green and Vornado fell between three and four percent on election night. Regional banks and NYC-heavy segments of the S&P 500 also dipped. Analysts warn that if implemented aggressively, Mamdani's policies could accelerate capital flight, reduce housing supply, and strain the city's budget, already facing a $3.6 billion deficit.

Yet Mamdani has shown signs of pragmatism. He has retained NYPD Commissioner Jessica Tisch and distanced himself from “defund the police” rhetoric. His success will depend on navigating state approval, federal pressure from Trump, and the city’s powerful business community.

Trump’s Truth reaction after his election debacle:

·         “TRUMP WASN'T ON THE BALLOT, AND THE SHUTDOWN WAS THE TWO REASONS THAT REPUBLICANS LOST ELECTIONS TONIGHT," according to Pollsters.

·         REPUBLICANS, TERMINATE THE FILIBUSTER! GET BACK TO PASSING LEGISLATION AND VOTER REFORM! President DJT

·         Pass Voter Reform, Voter ID, No Mail-In Ballots. Save our Supreme Court from “Packing,” No Two State addition, etc. TERMINATE THE FILIBUSTER!!!

Trump basically blamed his Republican colleagues and the ongoing government shutdowns. Trump also alleged rigging in elections as usual (when he loses).

Markets in Motion

Financial markets absorbed the results with measured alarm. The S&P 500 fell 0.6 percent on November 5, with real estate and regional financials leading the decline. Volatility rose, but no panic ensued. The market now sees three paths forward:

·         A quick resolution to the government shutdown could support modest gains into 2026.

·         A prolonged crisis combined with aggressive progressive governance in New York could trigger a seven-to-ten percent correction.

·         A compromise scenario—where Mamdani moderates and Congress passes a bipartisan spending deal—remains the least likely but most bullish outcome.

The Road to 2026 mid-term election: Trump may lose the House and his symbolic Trifecta

The 2025 elections have redrawn the political map. California’s redistricting gives Democrats a clearer path to the House majority. Democratic governors in New Jersey and Virginia now hold veto power over future congressional maps. And national polls show Democrats leading the generic congressional ballot by four points—enough to flip control of the lower chamber.

For Trump, the message is stark: his agenda faces not just opposition, but active erosion. The policies he can enact by executive action—tariffs, deregulation, immigration enforcement, energy development—will proceed. But anything requiring Congress is now in jeopardy. The 2025 elections were never going to reshape Washington overnight. But they have exposed the limits of Republican power, elevated a new generation of progressive leadership, and set the stage for 2026 as a referendum on cost, competence, and control. As the government shuts down and New York prepares for a progressive mayor, one truth stands clear: Trump’s second term has entered uncertain territory-growing political & policy uncertainty looms.

Trump is facing public pressure for his unconventional policies:

·         Tariffs & higher cost of living

·         Weak labor market

·         Business uncertainty

·         Federal austerity is costing millions of Americans while caring for Argentinians, Ukrainians, and even Russians.

·         Anti-immigration policies –although supported by most of the native Americans, immigrants are fiercely opposing, a significant vote bank for any political party.

·         Pro-Russian and Chinese policies are creating confusion among native Americans: Whether Trump is indeed a Russian asset or sympathizer?

Tariff Uncertainty Grips Markets as Supreme Court Weighs Trump's Trade Gambit

On a crisp Wednesday morning, the U.S. Supreme Court stepped into the heart of President Donald Trump's economic nationalism, hearing oral arguments in a case that could either cement his tariff empire or dismantle it brick by brick. The 90-minute session in *Learning Resources, Inc. v. Trump*—a consolidated challenge to Trump's sweeping use of emergency powers for trade duties—left justices probing the boundaries of presidential authority, while investors worldwide held their breath. With $108 billion already collected in tariff revenue and billions more in potential refunds hanging in the balance, the hearing amplified an already palpable sense of uncertainty rippling through global supply chains, stock markets, and diplomatic backchannels.

This isn't just a legal skirmish; it's a high-wire act for Trump's second-term agenda. Tariffs, once a signature tool of his 2016 campaign, have ballooned into a $500 billion-plus annual drag on imports, promising to shield American workers but delivering sticker shock to consumers and chaos to businesses. As the Court deliberates—potentially until June 2026—the limbo is exacting a toll, underscoring how judicial unpredictability can turn policy bold strokes into economic quicksand.

The Stakes: From "Liberation Day" to Legal Limbo

It began with fanfare. On April 2, 2025—proclaimed "Liberation Day" by the White House—Trump invoked the International Emergency Economic Powers Act (IEEPA) of 1977 to slap tariffs ranging from 10% to 145% on goods from China, the European Union, Mexico, Canada, and beyond. Steel, aluminum, semiconductors, automobiles, and even toys and wine became fair game, all under the banner of combating a "national economic emergency" fueled by trade deficits, intellectual property theft, and border pressures.

The Trump administration hailed it as a masterstroke, but U.S. manufacturing jobs plunged by ~40K in the first nine months. Trump himself framed the tariffs as existential: "Literally life or death for our financial and national security," he posted on Truth Social hours before the arguments in a calibrated pressure campaign strategy on SCOTUS (DOJ) by POTUS & Co (Trump admin). Trump or his deputies, like Treasury Secretary Bessent, may also attend the SC hearing personally in an unprecedented attempt to influence the US DOJ.

But the victory lap screeched to a halt in the courts. A unanimous panel of the U.S. Court of International Trade blocked most tariffs in May, followed by a 7-4 affirmance from the Federal Circuit in August. Challengers—a coalition of 12 states led by California Attorney General Rob Bonta, plus small businesses like Pennsylvania-based toy importer Learning Resources and New York wine distributor V.O.S. Selections—argued that IEEPA, designed for true crises like wars or embargoes, doesn't authorize what amounts to a presidential tax grab.

Now, with stays keeping the tariffs in place pending appeal, the Supreme Court holds the fate of an economy where uncertainty is the new normal. Businesses hoard inventory, consumers grumble at $1,000-plus annual household costs (per Tax Foundation estimates), and retaliation threats from Beijing and Brussels loom like storm clouds.

Beyond the Bench: A Presidency in the Balance

This hearing arrives amid Trump's broader tumult—the government shutdown teetering on midnight, off-year election drubbings for Republicans, and whispers of 2026 midterm peril. A win would vindicate his unilateralism, arming him with leverage against Beijing and bolstering approval ratings mired at 45%. A loss? It forces a congressional scramble, likely diluting the tariffs into narrower, bipartisan measures and exposing GOP fractures.

Critics like Senate Minority Leader Chuck Schumer call it "executive roulette," tying the uncertainty to everyday pains: higher grocery bills, delayed auto parts, and a Fed wary of cutting rates amid 3.2% inflation. Supporters, from MAGA influencers to Rust Belt unions, see salvation in the fight. As the justices recess, the real verdict plays out in boardrooms and ballot boxes. Tariff uncertainty isn't just eroding profits; it's testing the resilience of an economy—and a presidency—built on bold bets. In a world of supply chain snarls and geopolitical tinderboxes, the Supreme Court's whisper could echo as a roar.

Conclusions

The US needs political reform to avert a potential political & policy paralysis.

The US needs bipartisan political leadership to end the soap opera of breaching the debt limit every 6-12 months and subsequent government shutdowns. The US needs bipartisan constitutional reform to end the debt limit fuss every 6-12 months and subsequent government shutdowns by both Democrats and Republicans, whichever may be in the opposition camp. This is creating growing political & policy paralysis. Also, Presidential terms should be at least 5 years rather than the present 4 years, which are often hampered by various constitutional regulations. The US Presidents should be given more powers and policy-making authorities for domestic issues, rather than proactively seeking Tariffs, Trade, Tech, and even real wars and never-ending Chinese phobia.

US Futures Slide Deeper as AI Bubble Fears Grip Wall Street

U.S. stock futures extended their losses early Wednesday, signaling a rocky open for Wall Street amid fading hopes of another back-to-back Fed rate cut in December’25, coupled with stagflation and a mixed report card. The market is also anxious about the AI bubble valuation and overall Wall Street sentiment. The pullback follows a punishing tech-led rout on Tuesday that erased more than $1 trillion in market value from the Nasdaq, fueled by post-earnings skepticism around AI darlings and stark warnings from Wall Street titans about an impending correction.

Dow Jones Industrial Average futures dipped 0.1%, or about 50 points, while S&P 500 futures shed 0.4% and Nasdaq 100 futures tumbled 0.6% in pre-market trading. The moves come after Tuesday's bruising session, where the Dow closed down 0.53% at 47,085.24, the S&P 500 fell 1.17% to 6,771.55, and the Nasdaq Composite plunged 2.04% to 23,348.64. The Nasdaq's drop marked its steepest in over a month, dragging the broader market lower as AI-linked stocks bore the brunt of the selling.

Tech Titans Tumble Amid Valuation Reckoning: Circular vendor finance a classic Ponzi Scheme?

The epicenter of the turmoil was the AI sector, where even robust earnings failed to quell doubts about sustainability. Palantir Technologies (PLTR), the data analytics powerhouse riding the AI wave, cratered 7.9% to $189.45 despite surpassing third-quarter revenue estimates with $728 million (up 30% year-over-year) and raising its full-year outlook to $2.8 billion. Analysts pointed to the stock's nosebleed valuation—a price-to-sales ratio exceeding 85, the highest in the S&P 500—as the real culprit, with Deutsche Bank's Jim Reid noting a lack of "clarity through 2026" in the company's guidance. Michael Burry's Scion Asset Management amplified the unease by disclosing a $187 million short position against Palantir and Nvidia, sparking market chatter about an "AI bubble burst."

Nvidia (NVDA), the undisputed AI chip kingpin, wasn't spared either; it plunged as part of a broader rotation out of high-flyers. Tesla (TSLA) amplified the pain, tumbled to $444.26 ahead of its Thursday shareholder meeting, where investors will vote on reinstating CEO Elon Musk's controversial $56 billion (now ballooned to $1 trillion in value) performance-based pay package. Norway's sovereign wealth fund, a major stakeholder, voiced opposition, citing dilution risks and Musk's divided attention amid his roles at xAI and the Department of Government Efficiency.

The selloff rippled globally overnight, with Asia's markets echoing the dread. Japan's Nikkei 225 plunged 4.6% to below 50,000—its biggest drop since August—led by a 14% rout in SoftBank Group, which has heavy AI exposure. South Korea's Kospi fell 4%, Hong Kong's Hang Seng dipped 3%, and the MSCI Asia ex-Japan index cratered 2.3%, its sharpest decline since April. "When earnings beat trigger selloffs, valuations matter again," quipped one X trader, capturing the sentiment as Burry's bets fueled fears of a broader unwind.

Bank CEOs Sound the Alarm: Corrections Are Coming

What turned a routine post-earnings dip into full-blown panic? Blame the sobering words from Wall Street's corner office. At the Global Financial Leaders' Investment Summit in Hong Kong, Goldman Sachs CEO David Solomon forecasted a "likely" 10-20% drawdown in equities over the next 12-24 months, attributing it to "bubble-like dynamics" in mega-cap tech without commensurate earnings support. His counterpart at Morgan Stanley, Ted Pick, concurred, suggesting investors "welcome" a 10-15% pullback as a "healthy normalization" after AI-fueled exuberance. Capital Group's Mike Gitlin piled on, praising corporate earnings but lamenting "valuations being too high."

Broader Market Ripples and What's Next

The tech carnage pulled the rest of the tape lower, with Uber Technologies (UBER) tumbling 5.1% after missing on operating income and issuing soft guidance, while small-caps in the Russell 2000 lagged with a 1.78% decline. Bonds offered scant refuge: The 10-year Treasury yield eased 3 basis points to 4.08%, but the dollar index climbed 0.35% to 100.22 as safe-haven flows favored the greenback. Oil prices softened too, with Brent crude down 1% to $64.26 amid demand worries and higher supplies.

Looking ahead, the earnings calendar thickens: Nvidia reports on November 19, a make-or-break for the chip sector, while Thursday's Tesla vote could either soothe or inflame EV nerves. Federal Reserve speakers, including Chair Jerome Powell, may weigh in on rate cuts amid sticky 3.2% inflation, potentially influencing the pullback's depth. Goldman Sachs strategists now peg recession odds at 25% if the drawdown exceeds 15%, but they advise against timing the bottom—echoing Solomon's mantra.

For now, the market's message is clear: After a bull run propelled by seven "Magnificent" stocks accounting for 60% of S&P gains this year, the AI euphoria is colliding with reality. Whether this is a healthy breather or the bursting of a $10 trillion bubble remains the trillion-dollar question.

Wall Street recovered on Wednesday on fading concerns of a hard landing after the upbeat ADP jobs report

Fast forward, on Wednesday, November 5, 2025, Wall Street Futures recovered after upbeat ADP Private Payroll jobs data, indicating a soft landing. Wall Street staged a spirited comeback on Wednesday, with the three major U.S. stock indexes each climbing nearly 0.7% to erase much of the previous day's tech-fueled losses. The rebound came as investor jitters over sky-high AI valuations softened, buoyed by a slate of positive corporate earnings and encouraging economic signals that painted a steadier picture of the labor market and services sector. After Tuesday's sharp selloff—triggered by valuation warnings from bank CEOs and a post-earnings plunge in AI names—the market's swift pivot underscored resilient fundamentals amid ongoing uncertainties like the government shutdown and tariff limbo.

The Dow Jones Industrial Average rose 0.68% to close at 47,418.92, while the S&P 500 advanced 0.69% to 6,816.45. The Nasdaq Composite, still smarting from its 2% drop the prior session, notched a 0.72% gain to finish at 23,504.12. Trading volume was moderate, with advancing issues outpacing decliners by a 2-to-1 ratio on the New York Stock Exchange, as breadth improved across sectors.

Economic Bright Spots Fuel the Rally

 

A pair of key data releases provided the tailwind investors craved. The ADP National Employment Report revealed private-sector payrolls expanded by 42,000 jobs in October, surpassing forecasts of 35,000 and snapping a two-month streak of declines (September's figure was revised slightly to -29,000 from -32,000). Gains were broad-based, led by trade, transportation, and utilities (+47,000), education and health services (+26,000), and financial activities (+11,000), though losses in information (-17,000), professional services (-15,000), and leisure (-6,000) tempered the headline. Annual pay growth held steady at 4.5% for job-stayers and 6.7% for changers, signaling wage stability without inflationary spikes.

Complementing the jobs print, the ISM Services PMI surged to 52.4 in October—its highest in eight months—from 50.0 prior and beating estimates of 50.8. The reading, above the 50 expansion threshold, highlighted robust new orders and business activity, offering a counterpoint to manufacturing weakness and easing fears of a broader slowdown.

The releases arrived amid the federal government's partial shutdown, which has delayed official BLS jobs data and heightened reliance on private gauges like ADP. Yet the upbeat tone helped the 10-year Treasury yield climb 4 basis points to 4.12%, reflecting bets on fewer Fed cuts in 2026, while the dollar index edged up 0.2% to 100.45.

Tech and Communications Lead the Charge, Staples Drag

Sector rotation favored growth names, with communication services topping the S&P 500's 11 sectors at +1.2%, propelled by Alphabet (GOOGL) and Broadcom (AVGO). Tech rebounded 0.8% after Tuesday's drubbing, as Nvidia (NVDA) eked out a 0.6% gain to $143.60, stabilizing after its 4% slide. Broadcom surged 2.1% to $178.45 on AI chip demand optimism, while Alphabet climbed 2.0% to $185.20 amid ad revenue beats. Advanced Micro Devices (AMD) pared early losses to end up 0.2% at $162.80, despite a revenue forecast of $7.2-7.7 billion for Q4 that underwhelmed some—falling short of the $7.8 billion whisper number—but beat EPS expectations.

Consumer staples lagged with a 0.3% dip, as defensive positioning unwound in the risk-on environment. Energy slipped 0.1% on softening oil prices (Brent at $64.10), while financials gained 0.9% on HAWKISH Fed talks and yield curve steepening.

Earnings remained in the spotlight. McDonald's (MCD) leaped 3.4% to $295.80 after U.S. same-store sales grew 4.2%—faster than the 3.8% expected—driven by value menu traction and international strength. Qualcomm (QCOM) rose 1.9% to $182.10 ahead of its post-close results, with analysts eyeing 5G and AI chip upside. On the flip side, Palantir Technologies (PLTR) extended its woes with a 3.4% drop to $183.20, as valuation scrutiny persisted despite prior beats; its forward P/E now exceeds 100. Super Micro Computer (SMCI) tanked 8.2% to $48.50 after guiding for Q2 revenue of $5.5-5.8 billion—below the $6.1 billion consensus—citing supply constraints in AI servers.

Broader Context: From Tuesday's Tumble to Today's Trim

Wednesday's gains mark a textbook bounce from Tuesday's 1.17% S&P drop, where AI bubble fears—stoked by Goldman Sachs CEO David Solomon and Morgan Stanley's Ted Pick warning of 10-20% drawdowns—hammered the Nasdaq 2%. Palantir's 7.9% plunge and Tesla's 5.2% slide (to $444.26 ahead of today's shareholder vote on Musk's pay) epitomized the rotation out of overextended names, with the "Magnificent Seven" accounting for 60% of 2025's S&P gains now under the microscope.

Yet the rebound aligns with November's historical strength—the S&P's strongest month, averaging 1.8% gains since 1950. Year-to-date, the benchmark is up 15.2%, buoyed by Fed easing and corporate resilience, though tariff uncertainty from yesterday's Supreme Court hearing lingers. VIX futures eased 5% to 21.2, signaling fading panic.

Looking Ahead: SC hearing on Trump tariffs, Earnings, and Votes in Congress

The earnings parade continues: Qualcomm and Tesla's pay vote dominate Thursday, with Nvidia's November 19 report a pivotal AI litmus test. Friday's BLS jobs preview—delayed by the shutdown—looms large, potentially via proxies if unresolved. Broader risks include escalating trade rhetoric post-SCOTUS and off-year election fallout, but for now, the market's message is one of guarded optimism: Fundamentals trump froth. If the US SC indeed blocks Trump tariffs, it would be positive for Wall Street in the long run, although it may create volatility in the short term and vice versa.

Technical outlook: DJ-30, NQ-100, SPX-500 and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 47700) now has to sustain over 48000 for a further rally to 48300* and 48600/49000-49700/50000 in the coming days; otherwise sustaining below 47900-47700, DJ-30 may fall to 47200/47000-46500/46200 and further 45500/44950-44500/44200 and 43500 in the coming days.

Similarly, NQ-100 Future (25800) now has to sustain over 26100 for a further rally to 26200-26500 in the coming days; otherwise, sustaining below 25750, NQ-100 may fall to 25300/25000-24700/24500-24300/24300 and 23700/23400/23000 and 22600/22400 in the coming days.

Looking at the chart, technically SPX-500 (CMP: 6880) now has to sustain over 7050-7100 for a further rally to 7200/7300-7500/8300 in the coming days; otherwise, sustaining below 7025/6900-6800/6750, may fall to 6650/6595 and 6490/6450-6375/6300-6250/6200 and further fall to 6080 in the coming days.

Looking at the chart, Technically Gold (CMP: $4025) has to sustain over 4060-4125 for a further recovery to 4395-4405 for 4425/4455-4475/4500 to 4555-4575 and even 5000 zone in the coming days; otherwise sustaining below 4050-3875, Gold may again fall to 3770 and 3700/3600-3500/3450 and 3350 levels in the coming weeks.