Redemption Day quickly turned into Wall Street Reckoning Day.
Thursday, the sagging stock market had two big questions to answer: Is the artificial intelligence bubble about to burst, and will the Federal Reserve cut interest rates in December?
At first, it seemed that traders finally got the clear response they were eagerly waiting for:
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Nvidia reported super strong earnings on Wednesday night, which initially eased fears that demand for AI had faded.
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And the jobs report on Thursday morning showed that the unemployment rate rose unexpectedly, and the US economy had lost jobs in August for the second time in three months. The market bet that the Fed may be forced to cut rates next month to give the labor market a needed boost.
Phew. Right?
Wrong.
Traders initially cheered Thursday morning, sending all three major stock indexes much higher. At one point, the Dow Jones rose by more than 700 points. But by late morning, the rally began to falter, and sentiment – and the markets – turned sharply negative by midday.
So what happened? Businessmen came to realize that the answers they thought they had received actually raised new and more difficult questions.
“People are trying to figure out A.) What is better than off-charts in terms of what Nvidia can say from here and realize that there is no reward at these levels and B.) how the Fed can reduce if the employment numbers are really better,” said Michael Block, market strategist at Third Seven Capital.
By the end of the day on Thursday, it looked like nothing had changed: The markets resumed their slide that sent the S&P 500 down more than 5% from the highest level it reached just before Halloween.
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The Dow, in a swing of 1,100 points – the biggest since the turmoil caused by tariffs in April – fell almost 400 points by the end of Thursday.
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LS&P 500 fell 1.6% and the Nasdaq fell more than 2%.
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Nvidia (NVDA), which had gained as much as 5% earlier in the day, closed down 3%.
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And Bitcoin, which initially rose above $92,000, fell to near $86,000 late Thursday.
Markets look set to continue that trajectory on Friday. S&P 500 and Nasdaq futures were pointing modestly lower, and Nvidia was due to open up 2%. Bitcoin fell another 5% on Friday morning, falling near $80,000 – its lowest level since April – and on pace for its worst month since 2022.
If this continues Friday, markets are on track for their worst week in seven months.
Nvidia’s quarterly earnings were such a blow-out investors began to fear that the world’s most valuable company and producer of the most precious commodity in technology – high-end AI chips – could not possibly maintain this pace of growth for much longer.