Market Meltdown: Tech Leads Broad Sell-Off
Wall Street's relief over the end of the US government shutdown evaporated dramatically on Thursday, replaced by growing anxiety about an impending flood of delayed economic data and diminishing hopes for interest rate cuts. The result was the worst trading day for US stocks in over a month, completely reversing the rally that began when news broke of a deal to conclude the federal government's longest-ever closure.
The sell-off was widespread across sectors, with technology stocks experiencing particularly sharp declines alongside the Dow Jones Industrial Average, which plummeted by approximately 798 points. The pain extended to smaller companies as well, with the Russell 2000 index dropping 2.8%. Even cryptocurrency markets felt the pressure, as Bitcoin continued its recent slide, falling below the $100,000 psychological barrier to reach its lowest 4 p.m. level since May.
Data Deluge Sparks Investor Anxiety
For more than forty days, investors had been operating without crucial government economic reports that typically form the foundation of their market understanding. This information vacuum is set to end after President Trump signed spending legislation late Wednesday, but rather than bringing comfort, the prospect of multiple data releases simultaneously has created fresh worries about market volatility.
"What equities are possibly reflecting today is we're going to see a deluge of data," observed Mina Krishnan, multiasset portfolio manager at Schroders. "We've been in the dark for the past 40 days, and it'll be a lot of data all at once."
The major indices all suffered significant losses. The S&P 500 fell 1.7%, while the Dow dropped 1.7% and the tech-heavy Nasdaq composite sank 2.3%. These marked the largest single-day declines for all three benchmarks since October 10. Despite the sharp pullback, both the S&P 500 and Dow remained slightly positive for the week and near their record highs.
Rate Cut Bets Diminish, Tech Stocks Bear Brunt
Adding to market pressures, interest-rate futures indicated that traders were rapidly scaling back their expectations for a December rate cut. According to CME Group data, the probability of a cut next month dropped to around 50%, down from 63% on Wednesday and approximately 70% just a week earlier.
This shift in rate expectations accelerated the ongoing market rotation that has seen investors fleeing this year's hottest stocks in favor of less popular sectors. Technology stocks across the board faced intense selling pressure on Thursday.
Cloud-computing firm CoreWeave plunged 8.3%, extending its weekly decline to 25% after flagging a data-center developer delay earlier in the week. Other major tech names also suffered: Nvidia fell 3.6%, Oracle lost 4.1%, and Tesla slid 6.6%.
Prior to Thursday's session, technology sector losses had been offset by gains in other areas, particularly healthcare, which had lifted the Dow to a record close above 48,000 on Wednesday. However, the blue-chip index couldn't maintain that momentum, dragged down partly by Walt Disney shares, which tumbled 7.7% following the company's disappointing revenue report.
Despite the sell-off, many investors maintain a bullish long-term outlook on the technology sector, especially companies leading the artificial intelligence investment boom. However, concerns about stretched valuations have prompted profit-taking and portfolio reallocation.
"You're seeing people sticking to stocks, but they're rotating out of these growthy, more expensive equities into what might be perceived as more safe and cheaper stocks," explained Mark Malek, chief investment officer at Siebert Financial.
Some market participants believe the scaling back of rate-cut expectations was warranted. Jeff Young, head of investment strategy for PGIM Quantitative Solutions, noted that Wall Street had become overly confident about lower rates following the Fed's September projections that indicated two more cuts this year. He pointed out that this forecast masked divisions within the central bank between officials concerned about labor market weakness and those reluctant to cut rates while inflation remains above the Fed's 2% target.
Despite current uncertainties, Young suggested that forthcoming data releases would provide clearer direction for the Fed's decision-making process. The Labor Department announced Thursday that it would publish revised data release schedules as they become available. Analysts anticipate the September report to be released soon since it relies on data collected before the government closure began on October 1. However, White House officials have expressed doubts about whether a complete October report will be feasible.
Not all stocks participated in the downturn. Cisco shares climbed 4.6% after the networking company raised its outlook, while Verizon added 0.8% following reports of planned job cuts. The energy sector was the only S&P 500 segment to finish positive, edging up 0.3%.
In other markets, the yield on the benchmark 10-year US Treasury note rose to 4.111% from 4.066% on Wednesday, reflecting changing rate expectations. Silver futures slipped 0.5% after reaching record highs the previous day.
