Stock Market Update
U.S. stock markets experienced a significant downturn, with the Dow Jones Industrial Average closing over 1,000 points lower.
Initially, stocks showed promise, with the Dow seeing a rise of 700 points thanks to positive earnings reported by Nvidia, a major player in artificial intelligence chips, and Walmart, a discount retailer. However, this momentum didn’t last as stock prices began to falter. The delayed jobs report for September appears to have dampened expectations for potential rate cuts at the upcoming Federal Reserve meeting.
By the end of the trading session, the Dow dropped by 386.51 points, or 0.84%, settling at 45,752.26. The Nasdaq, which is heavily weighted toward tech stocks, fell 486.18 points, or 2.16%, closing at 22,078.048. Meanwhile, the S&P 500 Index decreased by 103.40 points, or 1.56%, to finish at 6,538.76. The yield on the benchmark 10-year bond saw a decline, reaching 4.098%.
This jobs report was delayed and was supposed to be released earlier in October due to the government’s shutdown lasting 43 days. It was reported that 119,000 jobs were added in September, but the unemployment rate increased slightly to 4.4%. This figure was much higher than the 51,000 jobs many economists had anticipated. To complicate matters, previous employment growth numbers from July and August were revised down by 33,000 jobs.
“Given the Fed’s recent hawkish turn and the lack of data expected before the December 10 meeting, it’s not surprising that markets believe any moves won’t happen until early 2026,” commented James Knightley, chief international economist at ING.
According to the CME Fedwatch Tool, which gauges investor expectations for interest rate changes, there’s nearly a 40% chance of a cut in December.
Despite all the buzz around an AI bubble, many analysts are skeptical about its existence. Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, noted, “The bubble concern is easily dismissible. Ultimately, stock valuations are tied to earnings once the headlines fade.” Analysts pointed out that Nvidia’s revenue has shown to be much lower than some expectations.
Mark Marek, CIO at Sievert Financial, expressed confidence in Nvidia’s position, saying, “Nvidia’s deep expertise and intellectual property advantage put it ahead of its competition. Whether by design or coincidence, Nvidia seems to deliver products that meet demand perfectly. Their performance has been not just solid, but really impressive.”
Kristi Akrian, from BlackRock, stated that corporate earnings were solid across various sectors. “Heading into third quarter, we were only expecting a 6% growth, but now that Nvidia has reported, it looks like our actual growth has more than doubled, marking our strongest quarter since late 2021.”
Many analysts stress that uncertainty is detrimental to the stock market. Although the discussion around an AI bubble has calmed with Nvidia’s results, there’s still a lot of ambiguity ahead. Brett Kenwell, a U.S. investment analyst at eToro, explained, “The emergence of uncertainty is really at the root of the market’s recent decline. We have factors like the Fed’s interest rate plans, the job market, customs legal rulings, and the looming threat of another government shutdown.” This uncertainty tends to destabilize markets and leads to heightened volatility.
He added that investors seem to be overlooking the overall economic health. “For over a month, both investors and the Fed have missed key economic reports, leaving us with an incomplete understanding of the economy,” Kenwell said.
Due to the government shutdown, the employment statistics for October will not be released since no data was collected last month.
While it’s uncertain when the market will rebound, stocks have a historical tendency to rise during this time of year. Kenwell pointed out that the market is approaching a “typically strong season.” The term “Santa Claus Rally” describes this trend, referring to the rise in stock prices from the day after Christmas through the first few business days of January. Historically, the Dow has increased by 77% during this period, and the S&P 500 has had positive returns 79% of the time since 1950, averaging a return of about 1.3%.
