U.S. Stock Market Experiences Major Decline
The U.S. stock market suffered significant losses, marking its most challenging day in a month and the second-worst performance since April.
On Thursday, the S&P 500 tumbled 1.7%, retreating further from its all-time high recorded late last month. Meanwhile, the Dow Jones Industrial Average plummeted nearly 800 points from its recent record, and the Nasdaq composite experienced a sharp decline of 2.3%.
Leading the downturn were Nvidia and other prominent AI stocks, which have come under scrutiny for their inflated prices. This skepticism extended to the wider market as traders began to question the anticipated interest rate cuts they had been banking on.
Amidst this turmoil, concerns have escalated regarding the future potential of these AI frontrunners, especially following their extraordinary performance thus far. For instance, at the beginning of this month, Palantir boasted an eye-popping 174% surge year-to-date.
Such remarkable stock performances have significantly contributed to the U.S. market reaching all-time highs, even amid a faltering job market and persistent inflation.
However, the spectacle of soaring AI stock prices has prompted unsettling comparisons to the 2000 dot-com bubble, which ultimately burst, leading to a near 50% decline in the S&P 500.
In parallel, non-AI stocks on Wall Street also faced losses as uncertainty grew regarding the Federal Reserve’s plans for interest rate cuts, which had been assumed to occur in December.
Traders typically favor interest rate reductions, viewing them as mechanisms to stimulate economic growth and elevate investment prices, despite their potential to exacerbate inflation. The cessation of rate cuts could jeopardize U.S. stock prices that have risen partly due to favorable expectations.
Recent sentiment around a third interest rate cut this year has diminished considerably. Current data from CME Group indicates that traders now perceive only a 49.6% probability of such a cut, a stark decline from nearly 70% just a week prior.
Comments from Federal Reserve officials have intensified this skepticism. Susan Collins, president of the Federal Reserve Bank of Boston, indicated late Wednesday that maintaining steady interest rates may be prudent “for some time.” This stance represents a significant shift from her previous remarks advocating for another cut.
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The Fed’s task has been complicated by the six-week federal government shutdown, which delayed vital updates on the labor market and other economic indicators, rendering it less certain whether the slowing job market or high inflation poses the more considerable threat.
Historically, the stock market has often risen during periods of government shutdown, but Wall Street is now bracing for potential fluctuations as key updates become available. There is trepidation that forthcoming data might compel the Fed to reconsider its stance on interest rate cuts.
According to Doug Beath, a global equity strategist at Wells Fargo Investment Institute, the impending “data deluge may spur additional volatility in the coming weeks.”
On Wall Street, the Walt Disney Company was a notable contributor to the market’s downward trajectory, witnessing an 8.1% decline. Despite reporting quarterly profits that exceeded analysts’ expectations, the company’s revenue fell short.
This decline offset a 4.2% increase for Cisco Systems, which reported better-than-anticipated profits and revenues.
Another relatively rare stock to experience gains was Berkshire Hathaway, under the stewardship of renowned investor Warren Buffett, who is famed for his interest in undervalued stocks. Berkshire Hathaway rose 1.9%.
In the bond market, Treasury yields rose, exerting downward pressure on stock prices and other investments. The yield on the 10-year Treasury noted an increase to 4.11% from 4.08% late Wednesday.
Internationally, stock indices in Europe experienced declines following modest gains in Asia. Tokyo’s Nikkei 225 index increased by 0.4%, despite losses for Japanese technology giant SoftBank Group, which fell by 3.4%.
The company has faced challenges since announcing it had divested its entire $5.8 billion stake in Nvidia earlier this week.
Source link: Scrippsnews.com.
