Wall Street tumbles: Wall Street sinks as investors fret about rate cuts

Wall Street tumbled on Thursday, with steep losses in Nvidia and other AI heavyweights, as investors scaled back expectations of interest rate cuts due to inflation worries and divisions among central bankers about the U.S. economy’s health.

The U.S. government reopened after a record 43-day shutdown that had worried investors and disrupted the flow of economic data.

A growing number of Federal Reserve policymakers in recent days have signaled hesitation about further interest rate cuts, pushing financial market-based odds of a reduction in borrowing costs in December to near even. Fed officials who spoke recently cited worries about inflation and signs of relative stability in the labor market after two U.S. interest rate cuts this year.

“The fundamental question is, is tariff inflation transitory and a one-time deal? And whether it is or isn’t, that’s why some of the Fed governors don’t want to cut,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. “It’s a risky bet either way, whether they cut or don’t cut.”

Shares fell for some of the U.S. stock market’s strongest performers in recent years, as investors fretted about high valuations fueled by optimism about artificial intelligence.

Nvidia, the world’s most valuable company, dropped 4.7%, Tesla fell 7.6% and Broadcom declined 5.4%. “There’s a lot of uncertainties about the state of the economy. … What we’re going through is a little bit of a correction in the market in the AI sector and we’re seeing market rotation,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. The S&P 500 was down 1.62% at 6,739.60 points.

The Nasdaq declined 2.48% to 22,825.50 points, while the Dow Jones Industrial Average was down 1.38% at 47,590.87 points.

Eight of the 11 S&P 500 sector indexes declined, led lower by information technology, down 2.74%, followed by a 2.58% loss in consumer discretionary.

Cisco Systems rallied about 5% after raising full-year profit and revenue forecasts, betting on demand for its networking equipment. On Tuesday and Wednesday, the Dow notched record high closes, benefiting from investors selling technology stocks and moving money into the health care sector.

Reflecting Wall Street’s rotation away from tech stocks, the S&P 500 value index has gained about 1.4% so far this week, while the growth index has dipped 0.7%.

Walt Disney tumbled 7.7% after the media giant signaled it was preparing for a potentially prolonged fight with YouTube TV over distribution of its cable channels. Recently, data from payroll processor ADP showed private employers shed over 11,000 jobs a week through late October and Indeed Hiring Lab showed a 16% drop in retail-related job postings in October from a year ago, pointing to continued weakness in the labor market.

Traders are pricing in about a 47% chance of a 25-basis-point rate cut in December, lower than last week’s 70% probability, according to CME Group’s FedWatch tool.

APA Corp gained 3.2% after a report that Spain’s Repsol is considering a reverse merger of its upstream unit with potential partners, including the energy producer. Memory device makers Western Digital and SanDisk dropped 3.1% and 10.7%, respectively, after Japanese memory manufacturer Kioxia Holdings reported lower sales and profits.

Declining stocks outnumbered rising ones within the S&P 500 by a 1.8-to-one ratio.

The S&P 500 posted 15 new highs and 6 new lows; the Nasdaq recorded 51 new highs and 178 new lows.