Wall Street Sees Steep Decline Amid AI Stock Sell-Off and Rate Uncertainty

The U.S. stock market experienced a significant downturn, recording one of its largest single-day losses since the spring, as investor confidence in artificial intelligence (AI) stocks waned and uncertainty surrounding future interest rate cuts intensified. Major indices reflected this negative sentiment, with the S&P 500 dropping 1.7%, distancing itself further from its recent record highs. The Dow Jones Industrial Average fell by 797 points, or 1.7%, from its peak, while the Nasdaq composite slid 2.3%.

The decline was most pronounced among technology shares, particularly those associated with AI. Shares of Nvidia, a leading semiconductor manufacturer, declined by 3.6%, exerting significant downward pressure on the broader market. Other technology firms engaged in AI, such as Super Micro Computer, Palantir Technologies, and Broadcom, also recorded notable losses, falling by 7.4%, 6.5%, and 4.3%, respectively. The rapid appreciation of these stocks earlier in the year had propelled the market to new heights; however, mounting concerns over inflated valuations have drawn comparisons to the technology bubble of 2000.

The robust performance of AI-related equities earlier in the year was a major factor in the market's record-breaking streak, despite broader economic challenges such as a slowing labor market and persistent inflation. For instance, Palantir Technologies had achieved a remarkable increase of nearly 174% year-to-date at the start of November. Such extraordinary gains have raised investor caution about the sector's ability to sustain its momentum.

Market sentiment was further dampened by growing skepticism regarding the likelihood of additional interest rate cuts by the Federal Reserve. Many investors had anticipated that the Fed would continue lowering rates to stimulate economic growth and support asset prices. However, recent comments from Federal Reserve officials, including Boston Fed President Susan Collins, have indicated a possible pause in rate reductions, citing the need for steady policy in light of mixed economic signals. The absence of timely economic data--delayed by the recent government shutdown--has complicated the central bank's decision-making process, as policymakers weigh the risks of a cooling job market against ongoing inflationary pressures.

The uncertainty regarding monetary policy has contributed to increased volatility, with analysts warning that a surge in upcoming economic data releases could exacerbate market swings in the weeks ahead. Additionally, a halt in expected rate cuts could undermine stock valuations, which have partially relied on the prospect of cheaper borrowing costs.

Beyond technology, other sectors also faced declines. The Walt Disney Company registered a 7.7% decrease, with its quarterly revenue missing analyst expectations despite surpassing profit forecasts. Conversely, Cisco Systems saw its share price rise by 4.6% after outperforming on both revenue and earnings. Berkshire Hathaway, the conglomerate led by Warren Buffett, experienced a 2.1% gain, reflecting investor interest in more traditional value-oriented assets amid market turbulence.

At the close of trading, the S&P 500 stood at 6,737.49, the Dow Jones at 47,457.22, and the Nasdaq at 22,870.36. In the bond market, the yield on the 10-year U.S. Treasury note increased to 4.12%, signaling a move away from riskier assets.

Internationally, European markets followed the U.S. downturn, while Asian markets were more mixed. Japan's Nikkei 225 rose 0.4%, even as SoftBank Group, a major technology investor, saw its shares fall by 3.4% after disclosing the sale of its entire $5.8 billion stake in Nvidia.

Other assets were not immune to the sell-off. Bitcoin, which had recently approached $125,000, retreated below the $99,000 mark, reflecting broader risk aversion in global markets.

As the Federal Reserve prepares to assess fresh economic indicators, traders and investors remain attentive to policy signals and market developments, anticipating continued volatility across asset classes in the near term.