Stocks Worsen Their Plunge as Investors Rethink AI Valuations and Rate Cuts

Wall Street tumbled sharply on Thursday, with major U.S. indexes pulling back from recent record highs as investor caution resurfaced following the end of the historic six-week government shutdown. The Dow Jones Industrial Average fell nearly 700 points, retreating below 48,000, while the S&P 500 slipped 1.7%, and the Nasdaq Composite declined 2.4%, marking its third consecutive down session.

The retreat was driven largely by technology and artificial intelligence-focused stocks, which continue to face selling pressure after months of extraordinary gains. Tesla declined 6.6%, while Palantir shed more than 5%, highlighting waning investor enthusiasm for high-flying AI names. Disney also posted a steep decline of over 9% after reporting revenue that fell short of expectations despite beating earnings estimates. The company’s fiscal year revenue reached $94.4 billion, up 3% from the previous year, but mixed segment results weighed on sentiment.

Healthcare and energy sectors saw scattered gains as investors rotated back into more traditional investment segments. However, these gains were not enough to offset losses in technology and communication services, leaving the market broadly in retreat.

With the government reopening temporarily through the end of January, markets are now focused on the resumption of critical economic data. Delayed reports, including the October inflation and employment figures, may have been permanently disrupted, but September’s Nonfarm Payrolls (NFP) jobs report is expected to be released soon. These data points are crucial for gauging the likelihood of a third quarter-point interest rate cut by the Federal Reserve in December. Currently, markets are pricing in just under a 50% chance of a cut, with expectations that the Fed may wait until its January 28, 2026 meeting to act.

The Federal Reserve’s monetary policy continues to influence the U.S. Dollar and broader markets. By adjusting interest rates, the Fed aims to balance price stability and full employment. Rate hikes can strengthen the dollar, while rate cuts encourage borrowing and can boost investment and stock prices. Uncertainty over the Fed’s next move, amplified by delayed economic data, has added volatility to U.S. equities.

Global markets also reflected caution. In foreign exchange, the euro and pound showed gains as the U.S. Dollar weakened following the shutdown, while gold retreated to around $4,150 per troy ounce amid rising U.S. Treasury yields. Emerging markets in Asia posted mixed results, with Japan’s Nikkei rising modestly even as SoftBank sold off its stake in Nvidia, contributing to sector-specific volatility.

Cryptocurrency markets experienced renewed activity, with Ripple trading just below $2.50 as investor sentiment improved. Meanwhile, innovative sectors such as AI and blockchain continue to attract significant investment, exemplified by multi-billion-dollar funding rounds and the launch of new platforms and financial instruments.

As Wall Street braces for a deluge of delayed economic data, investors are watching closely for signals on corporate earnings, Federal Reserve actions, and market rotation. The combined effects of slowing AI enthusiasm, mixed corporate results, and uncertainty over interest rates suggest that market volatility may persist in the weeks ahead.