What started as a great day for stocks turned into a sell-off as investors remained skeptical about the sustainability of the artificial intelligence boom and hopes for support from the Federal Reserve faded.
The tech-heavy Nasdaq fell 2%, and the S&P 500 index fell more than 1.5%. The Dow Jones Industrial Average, made up of the top 30 stocks, fell nearly 390 points. It had risen 700 points the previous day. The value of cryptocurrencies has also fallen by billions of dollars, with Bitcoin trading below $87,000 as of late Thursday afternoon, weeks after hitting a high of more than $120,000.
The stunning turnaround has added further uncertainty to an already fragile economy, forcing households to cut their budgets amid signs of stubborn inflation and a volatile job market. A prolonged market decline could cause broader damage, as wealthy households increasingly rely on wealthy households for a portion of consumer spending, a key driver of the economy.
“We don’t need the biggest bubble in history to end up in an overvalued stock market,” said Matt Maley, chief market strategist at Miller Tabak Asset Management Group.
Traders’ hopes rose early Thursday after a better-than-expected jobs report that appeared to show the economy remained resilient. Before the day began, the stock looked poised to rise after Nvidia, the chipmaker at the center of the AI boom, reported strong quarterly profits and sales.
But by midday, the market was red-hot. A strong September employment report has reduced the possibility that the U.S. Federal Reserve will cut interest rates next month to lower borrowing costs to boost economic activity. Investors often invest their savings in stocks when they don’t have to pay as much interest.
“The strong recovery in payrolls suggests that the risk of rising unemployment is diminishing,” Morgan Stanley analysts said in a note released just before noon. “We no longer expect the Fed to cut rates in December.”
The losses were compounded by continued concerns about AI, specifically how much more profit the companies that buy the chips, like Nvidia, will make. This concern was articulated on Wednesday evening’s X show by Michael Burry, who became famous for the movie “The Big Short.”
“Just because something is used does not mean it is profitable,” he wrote.
Finally, Bitcoin’s continued decline suggested to some traders that the stock’s main source of support, retail traders and day traders, was beginning to waver in its trademark “buy-on-the-moment” mentality.
“It’s not like we’ve gone from bullish to bearish,” said Steve Sosnick, chief strategist at financial group Interactive Brokers. “In the short term, I would say we have gone from a bull market to an equilibrium market. A lot depends on whether sentiment continues to weaken.”
Stocks had already shown signs of weakness in recent weeks. Thursday’s decline sent the S&P 500 index to its lowest point since September.
The long-delayed September jobs report seemed to offer a glimmer of hope for the economy, showing the US added a huge 119,000 jobs.
The unemployment rate rose to 4.4% from 4.3% in August, with about 450,000 workers joining the labor force. Economists see this as evidence that job opportunities remain plentiful despite a wave of corporate layoffs.
Just before the Bureau of Labor Statistics released its employment report, Verizon told employees it planned to lay off 13,000 people, about 13% of its workforce.
The company joins other blue-chip employers that plan to cut tens of thousands of jobs, including Amazon, General Motors, IBM, Microsoft, Paramount, Target and UPS.
A detailed employment report that captures the situation before the government shutdown, as well as more recent employment data, suggests a more complex picture for the U.S. economy.
Manufacturing lost 6,000 jobs, continuing a trend in the sector that the Trump administration has touted as a key goal of its economic policy. The transportation and warehousing industries also lost 25,300 jobs. Employment statistics for July and August were revised downward as wage growth slowed.
Employment gains in September were concentrated in the health care, hospitality and social assistance sectors.
Another snapshot of the economy came courtesy of Walmart, which reported strong sales on Thursday and raised its outlook for the year. But that strength points to cracks in the economy. Executives said the chain was attracting more high-income shoppers looking for bargains, and noted that lower-income households were feeling more pressure.
“Pocket pockets are tight, so more consumer money is flowing into essentials than discretionary items,” Chief Financial Officer John David Rainey said on an earnings call Thursday morning.
Walmart stock ended the day up 6.5%.
