An early stock-market rally gave way to broad-based selling on Thursday, as doubts about the artificial-intelligence trade re-emerged following the latest batch of earnings from Nvidia Corp.
Nvidia shares leapt higher in overnight trading on Wednesday, carrying shares of other AI stocks with them. Investors initially cheered as the company delivered its strongest revenue beat in two years, while Chief Executive Jensen Huang described demand for its Blackwell Ultra graphics processing units as “off the charts.”
But the optimism proved short-lived. Around midmorning in New York on Thursday, markets were struck by a wave of selling that weighed on stocks, as well as bitcoin and other cryptocurrencies.
An exact catalyst was unclear, according to Mark Hackett, chief market strategist at Nationwide. But investors were retreating from risky assets and shifting into bonds; Treasury yields, which move in the opposite direction to prices, declined.
“This is a coordinated risk-off move,” Hackett told MarketWatch. Investor sentiment, he added in written commentary, was looking pretty abysmal. The Cboe Volatility Index, known as the VIX or Wall Street’s “fear gauge,” finished at 26.05 — its highest end-of-day level since April, FactSet data showed.
Stocks drifted lower for most of the session, with major indexes finishing around their lowest levels of the day. As a result, the S&P 500 tallied its biggest intraday reversal since April 8, having fallen 3.5% from its intraday high of 6,770.35, according to Dow Jones Market Data. The index finished at 6,538.76, down 1.6% on the day.
The tech-heavy Nasdaq Composite saw the biggest drop among the major U.S. indexes, finishing 2.2% lower at 22,078.05, FactSet data showed. It was the index’s biggest drop since Nov. 13.
Along with the S&P 500, the Nasdaq and Dow Jones Industrial Average tallied their biggest blown gains since April.
Wall Street professionals offered a few explanations for what might be driving the reversal. Some, including Matt Maley, chief market strategist at Miller Tabek, pointed out that Nvidia’s results didn’t necessarily ensure that Big Tech’s massive investment in AI would produce the returns that investors were hoping for.
Michael Kramer, portfolio manager at Mott Capital Management, pointed to the ongoing decline in the amount of money parked in the Federal Reserve’s reverse repo facility as a sign that liquidity has been draining out of the financial system. That puts pressure on risky assets like stocks and crypto, he said.
“Simply put, there is much less liquidity in the market today,” Kramer said. It’s also possible that Nvidia’s results left investors wanting more, according to Andy Constan, founder and chief investment officer at Damped Spring Advisors.
Ahead of Nvidia’s earnings, many investors were hoping that a strong report could help shake stocks out of a slump that has persisted since the start of November. The fact that this rebound has failed to materialize could hint at more losses in the days and weeks ahead, Kramer noted.
With earnings season now all but over and a Federal Reserve interest-rate cut next month now in doubt, investors could be facing a temporary drought of news that would help propel the market higher from here, Hackett said.
Focus on the Fed
Others pointed to the latest batch of labor-market data released Thursday morning. Fed-funds futures were pricing in higher expectations for a Federal Reserve interest-rate cut in December, after a long-delayed September jobs report showed the unemployment rate ticked up to 4.4%, its highest level in four years.
Doubts about a December cut have grown since the Fed’s October meeting, when Chair Jerome Powell said another reduction was far from guaranteed. Yet uncertainty remains around whether the jobs data would make a rate cut more likely. The September report said that 119,000 new jobs were created that month, which was substantially higher than economists had expected.
“The bigger story is uncertainty over the September jobs report and whether it is going to have an impact that is negative or positive in December” in terms of the Fed’s decision, said Daniel Tenengauzer, a senior macroeconomic analyst at InTouch Capital Markets.
“The initial reaction was because the unemployment rate is rising relatively quickly,” he said. But that view has been replaced by several banks stating that there is not enough data to support weakness in the labor market, Tenengauzer noted.
The latest data don’t offer a clear-cut case for whether or not the Fed should cut rates next month, J.P. Morgan economist Michael Feroli said in commentary shared with MarketWatch.
Brian Mulberry, senior client portfolio manager at Zacks Investment Management, said he thinks the latest batch of data would support the Fed standing pat in December. If that does happen, it could raise questions about the timing of any future rate cuts.
A rare rough patch for stocks
Stocks have been struggling since the start of November, with the S&P 500 now down more than 5% from its record high reached in late October. The Nasdaq, meanwhile, has fallen by nearly 8%, leaving it closer to correction territory — defined as a drop of 10% or greater from a recent peak. The small-cap Russell 2000 has seen an even bigger decline, having fallen 8.5% from its October high.
Thursday’s decline left the S&P 500 on track for its worst November performance since 2008, according to Dow Jones Market Data.
Through the end of October, the S&P 500 had risen for six straight months, its longest winning streak since August 2021, according to Dow Jones Market Data. Given the magnitude of the index’s advance, it is possible that the latest bout of selling across stocks and cryptocurrencies like bitcoin could simply be investors taking some profits off the table before the end of the year, Nationwide’s Hackett said.
Bitcoin prices were off by 3.5% at $86,337 per coin as of 4 p.m. Eastern time, Dow Jones Market Data showed. Meanwhile, Nvidia finished 3.2% lower at $180.64.
The Dow Jones Industrial Average held up better than its peers, falling by 386.51 points, or 0.8%, to 45,752.26.
One bright spot in the market was the consumer-staples sector, which received a boost following strong earnings from Walmart Inc. Shares of the retail giant closed 6.5% higher at $107.11, and consumer staples were the only one among the S&P 500’s 11 sectors to finish Thursday in the green.