U.S. financial markets experienced their most significant single-day decline since mid-October, as a sharp reversal in technology stocks erased recent gains. The sell-off was led by a retreat in artificial intelligence leaders, reflecting growing investor caution over high valuations and future profitability.
The Dow Jones Industrial Average fell 1.65%, a day after reaching a new milestone. The broader S&P 500 dropped 1.66%, while the tech-heavy Nasdaq Composite saw the steepest decline, tumbling 2.29% by the closing bell on Thursday.
Key Takeaways
- Major U.S. indexes posted their worst performance since October 10, erasing recent record highs for the Dow Jones.
- A significant sell-off in major technology stocks, including Nvidia and Oracle, triggered the market downturn amid concerns over high valuations.
- Investor confidence in a December interest rate cut from the Federal Reserve has fallen dramatically, adding to market uncertainty.
- The downturn has spread to global markets, with major indexes in Asia, particularly South Korea's Kospi, also reporting steep losses.
AI Enthusiasm Cools, Triggering Tech Rout
The primary driver behind Thursday's market slide was a sudden shift in sentiment surrounding artificial intelligence stocks, which have propelled much of the year's rally. Major technology firms that have been at the forefront of the AI boom faced significant pullbacks.
Companies like Nvidia, Broadcom, and Oracle all saw their stock prices slump. The decline was particularly notable for Oracle, which has lost more than a third of its value since a major rally in September. This reversal suggests investors are becoming increasingly wary of the lofty valuations attached to tech companies.
From Boom to Scrutiny
The rally in AI-related stocks has been a defining feature of the market this year. However, investors are now looking more closely at the underlying financials. Concerns are mounting over the massive capital expenditures required to build AI infrastructure and whether projected revenues can justify current stock prices. Some companies, such as Oracle, have reportedly taken on substantial debt to fund these ambitious projects, adding another layer of risk for shareholders.
This growing skepticism marks a departure from the bullish sentiment that dominated previous months. The focus is shifting from the potential of AI to the practicalities of turning that potential into sustainable profit.
Federal Reserve's Next Move Hangs in the Balance
Adding to the market's anxiety is a growing uncertainty about the Federal Reserve's monetary policy. The likelihood of an interest rate cut in December, once seen as a near certainty, is now viewed as a toss-up.
According to the CME FedWatch tool, which gauges market expectations, the probability of a rate cut has plummeted. Just a month ago, traders were pricing in a 95.5% chance of the Fed easing its policy in December. Now, those odds have fallen to roughly 50%.
A Lack of Clear Signals
The Federal Reserve's decision-making process has been complicated by a recent lack of critical economic data. Key reports on employment and inflation for October were delayed, leaving policymakers with an incomplete picture of the economy's health. This forces the central bank to weigh the risks of persistent inflation against a potential slowdown in the labor market without its usual tools for guidance.
Recent comments from Fed officials have also tempered expectations for an imminent cut. Fed official Susan Collins stated on Wednesday that holding rates at their current level will "likely be appropriate," further signaling a cautious approach from the central bank.
Global Markets Follow Wall Street's Lead
The negative sentiment from U.S. markets quickly rippled across the globe. Asia-Pacific markets retreated on Friday, with investors reacting to the sell-off in New York.
South Korea’s Kospi index was among the hardest hit, sinking more than 3%. In Japan, investors continued to sell off shares of SoftBank for the third consecutive day, reflecting broader concerns in the technology investment space.
Economic Headwinds in China
Meanwhile, new data from China pointed to a deepening economic slump, adding to global concerns. Fixed-asset investment, a key measure that includes real estate and infrastructure spending, contracted by 1.7% in the first ten months of the year.
This marks the first time this measure has shrunk since the height of the pandemic in 2020, according to data from Wind Information. The slowdown in one of the world's largest economies is creating additional headwinds for global growth and investor confidence.
Corporate Profits Show Mixed Signals
While the broader market faced pressure, individual corporate stories highlighted the divergent paths companies are taking in the current economic environment.
Singapore Airlines reported a staggering 82% plunge in its second-quarter earnings. Analysts believe the airline's profits may remain under pressure due to ongoing losses at Air India, in which Singapore's national carrier holds a 25.1% stake.
"The proliferation of generative AI has been transformative for us. It’s not hope, it’s now."
– Tan Su Shan, CEO of DBS Bank
In contrast, some firms are already seeing tangible benefits from technology investments. Tan Su Shan, CEO of Southeast Asia's largest bank, DBS, said that the adoption of artificial intelligence is already paying off significantly.
She expects AI to contribute more than 1 billion Singapore dollars (about $768 million) to the bank's revenue this year. This financial impact is the result of approximately 370 different AI applications powered by over 1,500 machine learning models integrated throughout the bank's operations.
