Dow Jones Industrial Average recovers 300 points after AI sell-off finds footing

• The Dow Jones rebounded on Wednesday, climbing from 47,200.
• The week's brief but severe AI plunge has recovered for the time being.
• US ISM Services PMI results and ADP labor data gave investors a confidence boost.

The Dow Jones Industrial Average (DJIA) crimped bearish flows on Wednesday, finding a near-term foothold near the 47,200 level and rising 300 points as equity markets recover following an early-week plunge in the heavily concentrated AI and tech infrastructure segments. US Purchasing Managers Index (PMI) and ADP Employment Change data prints helped to soothe investor fears about a potential economic downturn. However, several cautionary flags bear mention on Wednesday's data docket.

AI sell-off recovers quickly

A steep sell-off in key stocks in the AI scene earlier this week sent equity markets broadly lower, briefly revealing to investors just how much of the investment world has become concentrated in a few key tech players, knocking on market sentiment even further. Palantir (PLTR) extended its mid-week decline, shedding further weight on Wednesday after falling a stunning 8% on Tuesday despite beating analyst earnings expectations. Elsewhere across the market, investor sentiment is back on the rebound, keeping indexes bid back into the green, though the Dow Jones remains down for the week.

ADP Employment Change numbers came in higher than expected, showing an estimated net gain of 42K new jobs in October compared to the previous month's print of -29K. ADP figures have a poor track record of accurately correlating to official datasets from one release to the next, but with the US federal government in full shutdown mode with no end in sight, investors are placing additional significance on volatile private data.

PMIs up, but at what cost

The Institute for Supply Management's (ISM) latest Services PMI showed a healthy uptick in service sector business sentiment in October, but here too lies the same volatility problem: response rates to private surveys tend to range from low to abysmal, frequently missing much of the key elements gleaned from large-scale official datasets.

October's ISM Services PMI rose to 52.4 from 50.0, indicating an overall improvement in business activity sentiment. However, the internals of the report show rising pressure in supplier deliveries, and the inventories index contracted for a second straight month, implying service providers are struggling to get their hands on additional merchandise and materials, which could eventually show up as additional price inflation pressure further down the line.

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