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Investors worry data gaps may delay Fed rate cuts

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Nasdaq sees heaviest selloff in a month amid AI stock

concerns

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Nvidia's ( NVDA ) upcoming results crucial amid stock rally

concerns

By Davide Barbuscia, Lewis Krauskopf and Gertrude

Chavez-Dreyfuss

NEW YORK, Nov 14 (Reuters) - The U.S. shutdown has ended

but the hangover is just beginning for investors, who worry gaps

in economic data will delay or even derail Federal Reserve rate

cuts just as worries over lofty AI stock valuations have put

fresh pressure on companies' stocks and bonds.

Concern drove the heaviest selloff for the rate-sensitive

Nasdaq in a month on Thursday on the heels, a week ago,

of its largest weekly drop since April. The index, which has

soared this year with booming AI shares, is down about 5% from

October's peak.

Indexes turned around on Friday, with stocks showing gains

and erasing an early-morning slide which saw b

lue-chip bourses from Tokyo to Paris and London deep in the

red.

Even gold and bitcoin were not spared, the latter

hitting lows near $96,000 last seen in May. Credit spreads - or

the premium over U.S. Treasuries paid by companies to issue

bonds in the U.S. market - widened this week.

The problem is an information vacuum that spans from futures

positioning to crop estimates and in particular jobs and price

figures, some of which weren't collected during the 43 days of

shutdown and are unlikely to ever be published.

There is doubt about the publication of October's inflation data

and the employment report won't include the jobless rate, White

House economic advisor Kevin Hassett said, because the household

survey from which it is calculated wasn't conducted.

'DRIVING IN THE FOG'

This matters for markets because Federal Reserve Chair Jerome

Powell has likened the situation to "driving in the fog" and

flagged that policymakers are likely to "slow down" in response,

or in other words hold rather than cut interest rates, after two

consecutive cuts in September and October.

"We were able to see a September cut and an October cut

because they felt confident in their direction of travel for

inflation ... will they have that confidence at the December

meeting with the lack of data points?" said Tim Horan, chief

investment officer, fixed income, at Chilton Trust.

Expectations for a 25-basis point rate cut in December, seen as

a sure thing a month ago, are down to about 50%, according to

CME's FedWatch tool, and that is making high-flying markets

jittery.

"We've obviously had a huge rally in the market from the

April trough, and it's pretty much been uninterrupted," said

Matt Sherwood, head of investment strategy at Perpetual in

Sydney.

"(It) requires Fed rate cuts and sustained easy financial

conditions to justify what I think are extreme valuations."

As of Wednesday, the forward price-to-earnings ratio for the

S&P 500, based on earnings estimates for the next 12 months,

stood at 22.8 times, well above its 10-year average of 18.8,

according to LSEG Datastream.

Together with year-to-date gains above 20% in hard-running

sectors such as technology, it also doesn't take much

for investors to want to lock in some gains.

Already the mood has turned fickle and darlings such as Palantir ( PLTR )

and Oracle have logged losses around 13% and

15%, respectively, this month. Chipmaker Nvidia is down

nearly 7%.

Nvidia's ( NVDA ) results next week are critical, given the stock has

been at the fore of the record-breaking stock rally this year.

"We're at a time of year here where any kind of downside

might ripple a little bit further in certain sectors that have

really put up big numbers this year, as you're going to have

some trigger fingers to take some profits off the table," said

Chuck Carlson, chief executive officer at Horizon Investment

Services in Hammond, Indiana.

Meanwhile, Michael Burry's decision to

close his hedge

fund Scion Asset Management on Thursday added to jitters

over frothy AI valuations. He has argued that tech giants

pouring billions into Nvidia ( NVDA ) chips and servers are quietly

stretching out depreciation schedules to make earnings look

smoother.

Valuation concerns spilled over into corporate debt markets,

too. Bonds issued by Oracle Corp ( ORCL ) have taken a hit in recent days

amid concerns over the cloud and AI giant's huge debt issuance

to further fund its AI infrastructure.

FLYING BLIND INTO 2026

During the shutdown, the data void shot previously

little-followed private surveys to prominence and painted a

mixed picture of the economy where spending appears to be

holding up but, on some measures, layoffs have surged.

Investors have struggled to draw conclusions and have stuck with

expectations for at least three cuts by the end of 2026 to take

rates to about 3%.

Analysts say that view is likely to face pressure, especially as

a growing number of policymakers are sounding reticent on rate

cuts.

"The Fed is flying blind as we are," said Bob Savage, head

of markets macro strategy at BNY in New York.

To be sure, there are plenty of investors who see recent

drawdowns as a rough patch in a rally that has further to run as

AI investment booms.

But it could be bumpy for a while. The behaviour of the U.S.

dollar, which has been falling along with stocks, may suggest

global money is flowing away from the U.S.

"The market may have some rockiness between now and

Thanksgiving," said Michael Schulman, partner and chief

investment officer at Running Point Capital Advisors.

"There's a lot of people waiting for things to untangle."

(Additional reporting by Laura Matthews in New York, Rae Wee,

Gregor Stuart Hunter and Tom Westbrook in Singapore and Kevin

Buckland in Tokyo; Writing by Tom Westbrook; Editing by Vidya

Ranganathan, Megan Davies, Lincoln Feast and Andrea RIcci )