S&P500: Nvidia Slide Fuels AI Valuations Reversal and Broad Market Retreat

Tech Rally Reverses as Nvidia Disappoints and Rate Cut Hopes Fade

Markets staged a dramatic reversal Thursday, surrendering substantial early gains as Nvidia’s blockbuster earnings failed to sustain investor enthusiasm and Federal Reserve rate cut expectations dimmed. The sharp intraday turnaround highlighted growing concerns about artificial intelligence stock valuations and monetary policy uncertainty.

The Dow Jones Industrial Average plunged 332 points or 0.7% after surging as much as 717 points earlier in the session. The S&P 500 shed 1% while the Nasdaq Composite fell 1.3%, erasing gains of 1.9% and 2.6% respectively from their session highs.

Nvidia Earnings Spark Brief Optimism Before Reality Sets In

Nvidia initially jumped 5% after reporting quarterly results that exceeded Wall Street expectations on both earnings and revenue. CEO Jensen Huang delivered a stronger-than-expected fourth-quarter sales forecast, declaring demand for current-generation Blackwell chips was “off the charts” while dismissing concerns about an AI bubble.

However, the stellar results proved insufficient to maintain momentum. Nvidia shares turned negative, falling more than 1.5% as investors questioned whether premium AI valuations could be justified without additional Federal Reserve support. Oracle and AMD led the retreat among AI plays, with Oracle dropping nearly 5% and Palantir tumbling 5.5%. The Technology Select Sector SPDR Fund declined 1.6%.

Jobs Data Shifts Fed Expectations

A stronger-than-expected September jobs report showing 119,000 positions added complicated the rate cut narrative. Following the data release, fed funds futures indicated less than 40% probability of a December rate reduction, down from previous expectations that had priced in a third cut for 2024.

“The Nvidia sizzle is being extinguished by the lowering probability of a December rate cut,” noted Jeff Kilburg of KKM Financial. “Markets expected a December cut, the narrative has seemingly changed.”

Bitcoin Plunges to Seven-Month Low

Risk assets broadly retreated, with Bitcoin briefly touching $86,854, its lowest level since April 21. The largest cryptocurrency by market capitalization last traded at $87,200, down roughly 2% on the day. The decline extended Bitcoin’s slide following cascading liquidations of highly leveraged crypto positions that began in early October, underscoring the risk-off sentiment permeating markets.

Defensive Rotation Gains Traction

Walmart emerged as a notable winner, surging 6% after posting better-than-expected fiscal third-quarter sales and revenue driven by e-commerce growth. The retailer’s outperformance reflected an ongoing rotation from high-valued technology stocks into defensive-oriented companies as investors reassessed risk exposure.

The broader market weakness extended recent trends, with the S&P 500 down approximately 3% month-to-date through Wednesday and the Nasdaq falling nearly 5% over the same period. Nvidia itself had declined 7% for November before Thursday’s volatile session.

Market Forecast: Bearish Near-Term

The inability to sustain early gains despite positive Nvidia earnings signals underlying market weakness. With rate cut expectations diminishing, Bitcoin hitting multi-month lows, and investors rotating away from high-multiple technology stocks, selling pressure should persist. The failed rally attempt confirms resistance overhead while defensive sector outperformance suggests risk-off positioning will continue dominating near-term market behavior.

More Information in our Economic Calendar.