As Wall Street wraps up a somewhat risk-averse week, stock prices in certain high-value sectors are dipping, and the ongoing decline in cryptocurrencies suggests minimal growth for that asset class through 2025.
On Friday, stocks dropped, with the S&P 500 set to conclude a three-week gaining streak as U.S. consumer sentiment hit a three-year low. The Nasdaq 100 fared even worse, experiencing a downturn tied to struggles in artificial intelligence stocks, marking its roughest week since the declines seen in April due to tariff issues.
After a sharp rally from earlier this year, there are worries that the high valuations of AI stocks may not be sustainable, resulting in calls for a needed pullback. Various technical indicators signal potential concerns, contributing to a generally cautious atmosphere on Wall Street.
“This week, major indexes are facing selling pressure,” noted Craig Johnson from Piper Sandler. “Investors should really consider the risk-reward scenarios after a healthy pullback in what’s been a bull market.”
The ongoing decline also comes as earnings reports are concluding, leading investors to depend more on private data in light of a stagnant government shutdown. The market remains susceptible to volatility, particularly with reports hinting at economic recession.
While U.S. employment data is not available due to the government shutdown, a study by 22V Research indicated that a potential cooling in the labor market poses a significant risk to trading. This scenario explains the heightened sensitivity of risky assets and bond yields to any related news.
The S&P 500 settled near 6,670, while the Nasdaq 100 declined by 1.1%. The index tracking the so-called Magnificent Seven saw a drop of 1.8%.
In the cryptocurrency realm, Bitcoin’s week has seen a 9% downturn. The yield on 10-year government bonds remained steady at 4.09%, and the dollar fell by 0.2%.
“Even though Friday’s job figures aren’t being released due to the government shutdown, there’s sufficient private sector payroll and layoff information indicating the labor market is softening,” remarked Glenn Smith from GDS Wealth Management. “This cooling trend could keep the Fed’s rate cuts on the table from December into early 2026.”
Seema Shah from Principal Asset Management noted that even if economic growth tapers off to average levels in 2026, the economy will still be on an overall upward path. “The primary concern, and what the Fed is focusing on, is the health of the labor market,” he stated. “We anticipate continued rate cuts from the Fed to prevent a sharp downturn in employment. Much of the market’s optimism hinges on the belief that policymakers will sustain a certain level of support.”
Despite the downturn, there are still supportive inflows. According to EPFR Global data, Bank of America highlighted that inflows into U.S. stock funds have persisted for eight weeks now, the longest streak this year, though most of it is in cash.
Markets seem to be weighing the balance as investors reflect on a momentary weakness within a protracted surge in stock prices. “We’re not suggesting that the risks and rewards are overly attractive, nor do we think this is the best time to increase risk significantly,” said Tony Pasquariello from Goldman Sachs. “However, moving forward, I would contend that the current balance of risks still favors the bulls.”
