Major U.S. Stock Indexes Experience Significant Drop
Wall Street faced a substantial sell-off on Monday, driven by a continued cooling of the artificial intelligence stock frenzy that has powered the market for months. The S&P 500 fell 0.9%, retreating further from the record high it achieved late last month. The Dow Jones Industrial Average plummeted 557.24 points, or 1.2%, while the Nasdaq composite sank 0.8%.
AI and High-Momentum Stocks Lead the Decline
The downturn was heavily influenced by a pullback in AI sector leaders. Nvidia, a chipmaker central to the AI boom, fell 1.8%, continuing a volatile period. Other prominent AI companies also saw significant losses, with Super Micro Computer sliding 6.4%. The sell-off extended beyond tech, impacting other recent high-flyers. Bitcoin dropped below $92,000, a notable decline from nearly $125,000 last month, which in turn dragged down crypto-related stocks like Coinbase Global (down 7.1%) and Robinhood Markets (down 5.3%).
Market analysts have repeatedly cautioned that stock prices, especially for AI-focused companies, had become overextended and expensive after a powerful rally since April. The upcoming earnings report from Nvidia on Wednesday is now under a microscope. The entire AI surge has been predicated on expectations of massive profit growth, and any failure to exceed analyst forecasts could jeopardize the rally's foundation.
Broader Market Pressures and Economic Outlook
The high expectations are not confined to the tech sector. Aramark fell 5.2% after its latest quarterly profit missed analyst targets. Despite forecasting strong profit growth for the upcoming year, its outlook was weaker than Wall Street had anticipated.
One bright spot was Alphabet, which rose 3.1% after Warren Buffett's Berkshire Hathaway disclosed a substantial $4.34 billion stake in the company. This move was seen as an endorsement of value in the tech giant.
Uncertainty around the Federal Reserve's interest rate policy also contributed to market jitters. While expectations had been building for a rate cut at the Fed's December meeting to support a slowing job market, recent doubts have emerged. Persistently high inflation above the Fed's 2% target complicates the decision. The recent U.S. government shutdown, which delayed key economic data, has added to the uncertainty. The delayed September jobs report, set for release on Thursday, is now a critical data point that could sway the Fed's decision and cause further market volatility.
In the bond market, the yield on the 10-year Treasury was relatively stable, edging down to 4.13%. Internationally, stock indexes in Europe and Asia mostly fell modestly. Tokyo's Nikkei 225 slipped 0.1% after data showed Japan's economy contracted at a 1.8% annual pace. South Korea's Kospi was a notable exception, jumping 1.9% on strength in its tech stocks.
