Stocks end sharply lower as bank CEOs warn of possible pullback, fueling tech bubble jitters

U.S. and Canadian stocks closed sharply lower on Tuesday as big banks warned that equity markets could be headed for a drawdown, reflecting mounting concerns over stretched valuations.

All three major U.S. stock indexes and the TSX slid well into negative territory after the CEOs of Morgan Stanley and Goldman Sachs stoked fears of a potential market bubble, with the S&P 500 having climbed to a series of all-time highs, largely powered by the artificial intelligence boom.

The S&P 500 and the Nasdaq suffered their biggest one-day percentage drop since October 10. It was the biggest drop for the TSX since Oct. 21.

Tech shares weighed particularly heavily on the Nasdaq, with six of the “Magnificent Seven” AI-related momentum stocks losing ground on the day. The Philadelphia SE Semiconductor index dipped 4.0%.

“We should welcome the possibility that there would be drawdowns, 10 per cent to 15 per cent, that are not driven by some sort of macro cliff effect,” Morgan Stanley CEO Ted Pick said at the Global Financial Leaders’ Investment Summit in Hong Kong. Meanwhile, Goldman CEO David Solomon said at the summit: “When you have these cycles, things can run for a period of time. But there are things that will change sentiment and will create drawdowns, or change the perspective on the growth trajectory, and none of us are smart enough to see them until they actually occur.”

JPMorgan Chase CEO Jamie Dimon warned last month of the heightened risk of a significant stock market correction within the next six months to two years, citing factors including geopolitical tensions.

“Investors seem a little more worried about valuation than they have in a while, at least today,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

“A lot of these companies’ valuations were pretty stretched and their earnings were good, but not great,” Carlson added. “And that’s a recipe for profit-taking.”

The U.S. government shutdown, the result of a congressional impasse, is nearing the record for the longest ever. The resulting dearth of official government data has led to increased scrutiny of private sources such as ADP’s National Employment Report expected Wednesday.

Comments from Federal Reserve officials are being parsed for clues as to how the data-dependent central bank will forge its monetary policy in the absence of crucial economic indicators.

The Dow Jones Industrial Average fell 251.44 points, or 0.53%, to 47,085.24, the S&P 500 lost 80.42 points, or 1.17%, to 6,771.55 and the Nasdaq Composite lost 486.09 points, or 2.04%, to 23,348.64.

The S&P/TSX composite index ended down 497.24 points, or 1.6%, at 29,777.82 points, its lowest closing level since September 26.

The Toronto market’s technology group lost 3.8%, with shares of Shopify Inc down 6.5% as a surge in expenses related to research and development, and marketing crimped the e-commerce company’s margins. The materials group, which includes metal mining shares, was down 3.6% as the price of gold fell.

Shares of Pet Valu Holdings dropped 16.1% after the pet food retailer reported quarterly results. Thomson Reuters reported higher third-quarter revenue and reaffirmed its full-year 2025 guidance. Still, shares of the content and technology company fell 5.6%.

Tech was down the most among the 11 major sectors comprising the S&P 500, falling 2.3%. Financials led the gainers.

Palantir Technologies slid 8.0% despite the data analytics company’s better-than-expected fourth-quarter revenue forecast. The stock has soared over 152% so far this year.

Uber fell 5.1% in the wake of the ride-hailing platform’s quarterly profit miss, while Henry Schein advanced 10.8% after hiking its annual profit forecast.

The U.S. dollar climbed to a three-month high against a basket of major currencies, benefiting from safe-haven demand.

Declining issues outnumbered advancers by a 2.45-to-1 ratio on the NYSE, where there were 68 new highs and 178 new lows. On the Nasdaq, 1,134 stocks rose and 3,578 fell as declining issues outnumbered advancers by a 3.16-to-1 ratio. The S&P 500 posted 13 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 54 new highs and 260 new lows.

Volume on U.S. exchanges was 19.82 billion shares, compared with the 21.04 billion average for the full session over the last 20 trading days.

Reuters, Globe staff