Wall Street Faces Its Sharpest Reversal in Months

Wall Street ‘Fear Gauge’ Spikes as AI Trade Loses Momentum

What began as a promising Thursday rally quickly turned into a broad market selloff as renewed doubts surrounding the AI trade emerged following Nvidia’s latest earnings results.

Nvidia shares initially surged overnight after the company delivered its strongest revenue beat in two years. CEO Jensen Huang said demand for its Blackwell Ultra GPUs was “off the charts,” lifting other AI names in premarket trading.

But the enthusiasm didn’t last. By midmorning in New York, stocks—and even cryptocurrencies like bitcoin—were hit with a wave of selling as investors moved into safer assets. Treasury yields fell as buyers piled into bonds.

“This is a coordinated risk-off move,” said Mark Hackett, chief market strategist at Nationwide. Sentiment was looking “pretty abysmal,” he added. The Cboe Volatility Index, or VIX, jumped nearly 12% to 26.05, its highest close since April.

The market’s reversal was sharp. The S&P 500 logged its biggest intraday swing since April 8, dropping 3.5% from its morning high before closing 1.6% lower at 6,538.76. The Nasdaq Composite fell 2.2%—its worst decline since Nov. 13—while the Dow slipped 0.8%. All three indexes posted their largest blown gains since April.

Strategists pointed to several possible triggers. Some warned that Nvidia’s strong results don’t guarantee that Big Tech’s huge AI investments will produce the returns investors expect. Others flagged shrinking liquidity as cash continues leaving the Federal Reserve’s reverse repo facility—a dynamic that tends to pressure risk assets like stocks and crypto.

“Simply put, there is much less liquidity in the market today,” said Michael Kramer of Mott Capital Management. And even with Nvidia’s beat, investors may have been expecting more, noted Andy Constan of Damped Spring Advisors.

Many traders had hoped Nvidia’s report would revive the market after a difficult November. With that bounce failing to appear—and earnings season coming to a close—Hackett said markets may be facing a “news vacuum” that keeps pressure on stocks.

Fed Doubts Add to the Uncertainty

Thursday’s labor-market data introduced even more confusion. Fed-funds futures briefly priced in higher odds of a December rate cut after the delayed September jobs report showed unemployment rising to 4.4%, a four-year high. But the report also revealed 119,000 new jobs—much stronger than expected.

“The bigger story is uncertainty over the September jobs report,” said Daniel Tenengauzer of InTouch Capital Markets. Several banks have argued the data isn’t enough to confirm labor-market weakness.

J.P. Morgan economist Michael Feroli agreed, noting the numbers don’t make a clear case either for or against a December cut. Brian Mulberry of Zacks Investment Management said the Fed is more likely to hold rates steady next month, which could push expectations for future cuts further into 2025.

A Rare Rough Patch for Markets

The S&P 500 is now down more than 5% from its late-October record, while the Nasdaq has fallen nearly 8%, edging closer to correction territory. Small-cap stocks have fared even worse, with the Russell 2000 down 8.5% from its recent high.

At this pace, the S&P 500 is headed for its worst November since 2008. After six straight months of gains through October—its longest winning streak since 2021—the recent pullback may also reflect investors locking in profits before year-end, Nationwide’s Hackett said.

Bitcoin dropped 3.5% to $86,337, and Nvidia closed 3.2% lower at $180.64. The Dow held up better than other major indexes, falling 0.8% to 45,752.26.

One area of strength: consumer staples. Walmart’s strong earnings powered a 6.5% jump in its stock, lifting the entire sector—the only S&P 500 sector to finish the day in the green.