Nasdaq Futures Tumble On AI Bubble Fears: VIX Poised For Big Spike As Strategist Flags Risks To Market Rally

• The S&P 500 VIX futures spiked over 5%.
• The economic calendar of the day is empty due to the ongoing government shutdown.
• AMD’s earnings could serve as a litmus test for the health of the tech sector. 

U.S. stock futures traded notably lower early Tuesday, following tech optimism that drove the S&P 500 and the Nasdaq Composite further toward their record highs in the previous session. An adverse stock reaction to Palantir’s (PLTR) third-quarter outperformance may lead to weakness in artificial intelligence (AI) trades.

Hedge fund manager Michael Burry’s skeptical post about the health of the tech sector and his firm’s massive bearish bets against Nvidia (NVDA) and Palantir may also serve to dampen sentiment toward the tech sector. 

The economic calendar of the day is empty due to the ongoing government shutdown, save for a speech by a Federal Reserve official.

Fund manager Louis Navellier expressed uneasiness over the volatility despite the market’s upward momentum. He also worried about the widening spread between the gains for the market-weighted and even-weighted S&P 500 Index. The strategist noted that the spread is now over 10%, the largest divergence on record, underlining the huge outperformance of mega-cap techs.

Navellier also pointed out the underperformance of the consumer staples sector and the restaurant industry, adding that these reflected the “stressed consumer, particularly those not getting the wealth effect of higher stock prices.”

How Futures Are Trading

As of 2:30 a.m. ET on Tuesday, the Nasdaq 100 futures and Russell 2000 futures sank over 1% each, while the S&P 500 futures and Dow futures plunged 0.62% and 0.92%, respectively. On the other hand, the S&P 500 VIX futures spiked over 5%.

On Stocktwits, retail sentiment toward the SPDR S&P 500 ETF (SPY), an exchange-traded fund that tracks the S&P 500 Index, worsened to ‘extremely bearish’ as of early Tuesday, from  ‘bearish’ the day before, and the message volume on the stream, however, increased to ‘high’ levels.

The mood toward the Invesco QQQ Trust (QQQ) ETF, which tracks the Nasdaq 100 Index, dipped further within the ‘extremely bearish’ territory, and the 24-hour message volume remained ‘high.’

Commenting on the QQQ stream, a bearish watcher called QQQ’s rally a “scam pump” and said it “will collapse so bad.

Another user said the AI bubble burst with Palantir’s earnings and will be solidified with AMD's earnings on Tuesday. 

How Markets Fared Monday

Stocks closed Monday’s session on a mixed note, with the Nasdaq Composite and the S&P 500 rising as AI stocks rallied hard on the back of a deal Amazon announced with OpenAI. AI stalwart Nvidia’s stock rebounded from two-session losses, lending support to the market. On the other hand, the Dow Jones Industrial Average and Russell 2000 indices retreated.

The SPY and QQQ ETFs rose 0.19% and 0.48%, respectively, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) and the iShares Russell 2000 ETF (IWM) fell 0.46% and 0.32%, respectively.

Key Catalysts To Watch Out For

Fed Vice Chair for Supervision Michelle Bowman is due to speak at 6:35 a.m. ET.

Noteworthy names featured on the earnings calendar for the day are Pfizer (PFE), Advanced Micro Devices (AMD), ADM (ADM), Apollo Global Management (APO), Embraer (EMBJ), Expeditors International (EXPD), Global Payments (GPN), Harley-Davidson (HOG), Hertz Global (HTZ), Norwegian Cruise Line (NCLH), Spotify (SPOT), Shopify (SHOP), Uber (UBER), Yum Brands! (YUM), Yum China (YUMC), Amgen (AMGN), Cirrus Logic (CRUS), Live Nation, Upstart (UPST), (LYV), Pinterest (PINS) and Skyworks (SWKS).

How Other Markets Fared

Crude oil futures retreated and traded under $61 in the Asian session, and gold futures traded below the $4,000 mark. The 10-year U.S. Treasury note yield slipped below the 4.1% level, and the greenback ticked down against its major counterparts, with the U.S. dollar index briefly topping 100 for the first time in three months before pulling back.

Most major Asian markets pulled back amid profit-taking and indications of a collapse in AI trades when the U.S. market opens. 

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read Next: Big Short 2.0? Michael Burry Bets Against Nvidia, Palantir Stocks In Stark Warning Against AI Euphoria: ‘Move Along’

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