Jarring swings rock Wall Street as US stocks give up a morning surge

Wall Street volatility continued Thursday as markets executed another dramatic reversal, erasing substantial morning gains and leaving major indices in negative territory by midday. The S&P 500 dropped 0.7% after initially surging 1.9%, while the Dow Jones Industrial Average fell 231 points, or 0.5%. The tech-heavy Nasdaq composite declined 1%.

The market’s recent instability stems from two primary concerns that have rattled investor confidence. First, there’s growing anxiety that artificial intelligence stocks, particularly market leader Nvidia, may have reached unsustainable valuations. Second, uncertainty persists about whether the Federal Reserve will continue cutting interest rates, a key driver of the market’s earlier rally this year.

Technology companies, which led the market’s impressive gains earlier this year, once again bore the brunt of the selling pressure. Cryptocurrencies also continued their steep decline, with Bitcoin falling below $87,000—a significant drop from its peak of nearly $125,000 last month.

Nvidia, which initially appeared to ease concerns about an AI bubble with strong quarterly results, saw its stock price swing wildly. After reporting summer profits that exceeded analyst expectations and providing revenue forecasts that easily surpassed estimates, shares initially jumped 5% before reversing course to trade down 1.5% by midday.

“It is very hard to see how this stock does not keep moving higher from here,” noted UBS analysts led by Timothy Arcuri, adding that “the AI infrastructure tide is still rising so fast that all boats will be lifted.” Despite this optimism, Nvidia’s stock has now fallen 10% below its recent record high.

The broader concern regarding AI investments extends beyond Nvidia alone. While the chipmaker expects to sell an impressive $65 billion worth of chips in the coming quarter, exceeding analyst projections, investors increasingly question whether these massive investments will translate into proportional profits for companies deploying the technology.

A recent Bank of America survey revealed a record percentage of global fund managers believe companies are “overinvesting,” with a potential AI bubble ranking as their number one market risk. Other tech giants followed similar trajectories in Thursday’s trading, with Amazon swinging from an early 2.1% gain to a 1.3% loss, and data analytics firm Palantir Technologies reversing from a 5.5% gain to a 4.3% decline.

The day’s economic data provided mixed signals regarding the Federal Reserve’s likely course of action. September’s employment report showed stronger-than-expected hiring, suggesting continued economic resilience. However, a slight uptick in the unemployment rate could provide justification for the Fed to implement another interest rate cut at its December meeting.

Market participants now see approximately a 40% probability of a December rate cut, up from 30% before the jobs report’s release. The Fed has already cut rates twice this year in response to a cooling labor market, but must balance economic support against the risk of reigniting inflation, which has remained stubbornly above the central bank’s 2% target.

One notable bright spot amid the market turbulence was Walmart, whose shares surged 5.8% following exceptional quarterly results. The retail giant reported robust sales and profits that significantly exceeded Wall Street expectations, demonstrating its continued ability to attract cost-conscious consumers during uncertain economic times.

In the bond market, the yield on the benchmark 10-year Treasury eased to 4.08% from 4.13% the previous day, reflecting shifting expectations about future interest rate policy.

International markets fared better, with indices rising across much of Europe and Asia. Japan’s Nikkei 225 jumped 2.6%, while South Korea’s Kospi advanced 1.9%, representing some of the day’s strongest performances globally.