05:02 PM EST, 11/04/2025 (MT Newswires) -- US benchmark equity indexes fell at Tuesday's close as warnings of a correction from major Wall Street banks coincided with valuation concerns surrounding Palantir Technologies ( PLTR ) , undermining the so-called artificial intelligence trade.

The Nasdaq Composite dropped 2% to 23,348.64, with the S&P 500 down 1.2% to 6,771.55, and the Dow Jones Industrial Average 0.5% lower at 47,085.24. Technology, communication services, and consumer discretionary led the decliners.

Wedbush Securities maintained its outperform rating on Palantir's ( PLTR ) stock following market-beating Q3 results overnight, viewing it as "one of the (artificial intelligence) tech stalwarts over the next decade," according to a Tuesday client note. The company's price-to-sales ratio is estimated to be 85, as per a Bloomberg TV report. Shares of Palantir ( PLTR ) sank 7.9%, among the steepest declines on the S&P 500 and the Nasdaq.

Investors "should welcome the possibility that there would be drawdowns, 10% to 15%, that are not driven by some macro cliff effect," Reuters reported Morgan Stanley Chief Executive Ted Pick as saying at the Global Financial Leaders' Investment Summit in Hong Kong.

The Global X Artificial Intelligence & Technology ETF ( AIQ ) , with net assets of $5.98 billion, dropped 3.3% as investors reduced exposure to artificial intelligence plays.

"When you have these cycles, things can run for a period of time," Goldman Chief Executive David Solomon was cited as saying in the news report. "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."

The CBOE Volatility Index, also known as the fear gauge, jumped 11% to 19.0.

"Investors questioned lofty valuations in the technology sector after major Wall Street banks warned of a possible selloff and Palantir's ( PLTR ) subdued sales forecast dampened sentiment around artificial intelligence plays," a research note from D.A. Davidson said early Tuesday.

For 2025, Palantir ( PLTR ) expects revenue of $4.396 billion to $4.400 billion, compared with its previously set guidance of $4.14 billion to $4.15 billion and market expectations of $4.14 billion.

Beyond concerns around valuations for artificial-intelligence plays, there also has been "a subtle shift below the surface" in response to Federal Reserve Chair Jerome Powell's cautious stance regarding a December rate cut, Keith Lerner, chief investment officer at Truist Advisory Services, was cited as saying in a MarketWatch news report published by Morningstar.

The probability of a 25-basis-point interest-rate cut in December stood at 70%, down from 91% a week ago, as per the CME FedWatch Tool late Tuesday, reflecting the challenge for overvalued assets.

Meanwhile, in economic news, the first look at consumer confidence for November showed a decline from October, with the RealClearMarkets' monthly index sinking to 43.9 from 48.3.

US Treasury yields fell, with the 10-year yield down 2.2 basis points to 4.08% and the two-year rate lower by 2.4 basis points to 3.58%.