FX.co ★ Stock market on October 8: S&P 500 and NASDAQ pull back from highs

Yesterday, US stock indices closed lower. The S&P 500 fell by 0.38%, while the Nasdaq 100 declined by 0.67%. The industrial Dow Jones was down by 0.20%.

Wall Street traders took profits after the first signs of waning buying power. The energetic enthusiasm driven by artificial intelligence shifted to concerns about the sustainability of the rally, following the S&P 500's $16 trillion surge from the April lows. Tech giants weighed on the index after news that Oracle Corp.'s cloud profitability came in below many expectations. Shares of Tesla Inc. dropped by more than 4% after the company released new versions of its best-selling models priced under $40,000. The S&P 500 closed at 6,715. Shares of Dell Technologies Inc. rose by 3.5% after guidance was raised on the back of strong AI demand. The yield on 10-year US Treasuries fell by three basis points to 4.13%.

Investor optimism had been rising in recent months, as many appeared too focused on chasing returns to worry about risks such as a US government shutdown and stretched valuations. Goldman Sachs Group Inc. reported last week that bullish sentiment among clients had hit its highest level since December of last year. This confidence, while not supported by strong economic data but linked to expectations of a new Federal Reserve rate-cutting cycle, has pushed markets to new heights.

The S&P 500 and Nasdaq Composite have posted impressive gains, attracting more and more retail investors eager not to miss out. However, it is important not to overlook potential pitfalls. On the one hand, there is continued uncertainty regarding the geopolitical landscape, including tensions between the US and China as well as ongoing military conflicts. On the other hand, elevated valuations in some stocks, particularly in the technology sector, could result in a painful correction.

Against this backdrop, a period of consolidation would not be surprising after such strong recent gains.

Traders also analyzed comments from Federal Reserve officials. Governor Steven Miran stated that his expectations of limited tariff impact on inflation allow the Fed to continue easing policy. Minneapolis Fed President Neel Kashkari warned that any sharp rate cuts could lead to higher prices.

Some Wall Street professionals note that the rapid, consecutive double-digit price increases in several large technology companies might indicate that valuations have become disconnected from fundamentals.

As for the technical picture of the S&P 500, the main task for buyers today will be to break through the nearest resistance level of $6,727. This would support further growth and open the way for a move toward the next level at $6,743. No less important for bulls will be to maintain control over $6,756, which would strengthen buyers' positions. In a downward move amid declining risk appetite, buyers must step in around $6,711. A break below this level would quickly push the instrument back to $6,697 and open the way to $6,682.