Dow, S&P 500, Nasdaq slide as Wall Street eyes fallout from US shutdown

Stocks opened lower Thursday as the longest government shutdown in history ended.

The S&P 500 (^GSPC), Dow Jones Industrial Average (^DJI), and the Nasdaq Composite (^IXIC) fell less than 1% after the opening bell. The Dow posted a fresh record a day earlier as investors rotated out of tech stocks, with concerns of an AI bubble growing.

In individual names, Disney (DIS) shares tumbled more than 7% after the entertainment giant reported mixed Q4 earnings.

According to economist and former PIMCO CEO Mohamed El-Erian, “we are in a rational bubble” that could end painfully for some investors.

“So yes, there are elements of a bubble,” El-Erian explained, “and there are three elements in particular of this bubble. First, the frontier, those working on foundational models — not all of them are going to succeed. And yet all of them are attracting significant investment. Second, diffusion isn’t being talked about enough. Diffusion means getting AI into the workplace in an orderly fashion, in a comprehensive fashion.”

The third aspect, like the dot-com bubble, is “companies simply putting a label on what they do and attracting investment. Well, that label today is AI. So there are elements of a bubble, which means that people will end up with losses, but the aggregate value of what’s being created is significant. And therefore the rationality part comes in.”

El-Erian added in an interview at Yahoo Finance’s Invest event that while some investors may get burned, “the aggregate value of what’s being created is significant” and therefore, rational.

Watch the full interview here.

Catch up on the latest moments from Yahoo Finance Invest

The enormous computing cost of training and running models has forced a new generation of AI companies to reorient their sales strategy, writes Yahoo Finance’s Hamza Shaban.

He reports:

If the defining adage of the social media era was that you are the product, what new economic metaphors will the AI transition inspire?

A key difference between the new crop of AI startups and the mobile-era cohort of software companies is how they view the work and value of acquiring new users.

User growth was the coin of the realm for the past several decades, as sharply portrayed in a definitive scene from “Silicon Valley.”

Why should app developers seek out revenue streams when they can simply run companies that are “pre-revenue?” After all, once you show revenue, investors will start judging your company’s financial performance. Better to chase the dream of a big payday in the future than worry about making modest money now.

The AI infrastructure investment train is running this playbook, in a way. Spending is the new growth. But something’s changed.

“AI-driven startups are building businesses that differ widely from the highly successful but now outdated ‘software as a service’ (SaaS) business model,” wrote DataTrek co-founder Nicholas Colas in a note to clients earlier this week.

In other words, this isn’t your grandfather’s SaaS.

Read more here in the takeaway from today’s Morning Brief.

Yahoo Finance’s Invest event kicks off live at 8 a.m. ET on Thursday, Nov. 13, from our New York City studio.

Setting the tone for the event will be the unusual state of the economy. It’s been a rough year for layoffs. Consumers are sick of inflation. Yet investors continue to see huge opportunities in artificial intelligence, which has bolstered the stock market this year.

As my colleague Brian Sozzi asked on Sunday, why isn’t the wealth effect of higher stock prices lifting all economic and corporate ships?

These questions and more will be addressed at Invest. Here’s a sampling of what to expect from the all-day streaming event:

You can watch the event on these streaming services, desktop, and the Yahoo Finance app.

Yahoo Finance’s Jennifer Schonberger reports:

Boston Fed president Susan Collins said Wednesday that while she supported cutting interest rates at the last policy meeting, the bar for cutting rates further is “relatively high” and she sees holding rates at current levels for “some time.” …

In her first comments since the Fed’s policy meeting on Oct. 29, Collins cautioned that providing additional support to the economy through lower rates runs the risk of slowing — or possibly even stalling — inflation coming back down to the Fed’s 2% target.

She further stressed that demand in the economy is “resilient demand,” and while unemployment risks moving higher, she doesn’t think the job market has deteriorated further since the summer.

Collins joins the growing chorus of Fed officials who have become more cautious on whether to cut rates at the next meeting in December.

Atlanta Fed president Raphael Bostic said Wednesday that while it’s an “extremely close call,” he believes inflation is a more “urgent risk” than the job market right now.

Read more here.

Cisco Systems (CSCO) raised its annual profit and revenue forecasts on Wednesday as data center expansions drive demand for its networking equipment.

Shares of the San Jose technology company stock jumped almost 7% in premarket trading.

Bloomberg reports:

Read more here.

Bloomberg reports:

Read more here.