Wall Street Plunges! Dow Drops 800 Points as AI Rally Cools, Fed Fears Rise. What's Next?

Author

Satyam Jha | Whalesbook News Team

Detailed Coverage:

Wall Street endured its most significant downturn in a month on Thursday, with major benchmarks like the Dow Jones Industrial Average falling by 800 points, ending a four-day winning streak. This correction saw the index give up nearly 60% of its recent rally. Profit booking was evident across the market, with the S&P 500 declining over 1.5% and the Nasdaq Composite closing more than 2% lower, marking its fifth loss in six sessions.

Sentiment around AI-linked stocks turned cautious. Oracle, which had previously surged 36% in a single day after a deal with OpenAI, has now relinquished all those gains. This market action is being described as a classic "buy-the-rumour-sell-the-news" phenomenon.

As the US government shutdown concludes, Wall Street anticipates a wave of economic data releases from the Bureau of Labor Statistics. However, the October jobs data will be reported without unemployment details due to data collection disruptions during the shutdown.

Furthermore, hopes for a Federal Reserve rate cut in December have diminished. Multiple Fed officials have indicated that it is too early to decide on rate cuts or have explicitly stated they would not vote for a cut on December 10. Consequently, the CME Fedwatch Tool shows the probability of a 25 basis point cut in December has decreased.

The sell-off also impacted risk assets, with Bitcoin falling below $100,000, its lowest point since May, now down 20% from its October peak.

Expert Matt Maley of Miller Tabak + Co. commented that "it’s an expensive market and expensive markets need lower rates to help justify today’s elevated valuations." He added that "this uncertainty is raising some fear in the marketplace."

The US Dollar index has retreated towards 99, while Gold prices remain firm around $4,200 an ounce despite fading Fed rate cut expectations.

Impact: This significant downturn in the US market could trigger cautious sentiment globally, potentially affecting Indian stock markets by influencing foreign investor sentiment and capital flows. However, the direct impact on Indian indices might be limited if domestic economic factors remain strong. Impact rating: 6/10

Difficult terms: Government shutdown: A situation where the US federal government ceases operations due to a failure by Congress to pass appropriations legislation. Profit booking: The act of selling an asset (like stocks) after its price has risen, to realize the profit. Rally: A sustained increase in the price of a stock, security, or market. S&P 500: An American stock market index representing the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Nasdaq Composite: A stock market index that lists the stocks of more than 3,000 companies listed on the Nasdaq stock exchange. AI-linked stocks: Companies whose business or valuation is significantly tied to advancements or applications in Artificial Intelligence. Oracle: A major American technology company that specializes in database software and technology, cloud engineered systems, and enterprise software products. OpenAI: An artificial intelligence research and deployment company, known for developing advanced AI models like ChatGPT. "buy-the-rumour-sell-the-news": A market phenomenon where traders buy an asset based on anticipated positive news, and sell it once the news is officially released and confirmed, often leading to a price drop. Bureau of Labor Statistics (BLS): A federal agency within the United States Department of Labor that primarily gathers, processes, and disseminates various labor market information and statistics. Jobs data: Economic statistics related to employment, such as unemployment rates, job creation, and wage growth. Unemployment: The state of being jobless and actively seeking employment. Federal Reserve (Fed): The central banking system of the United States, responsible for monetary policy, financial stability, and regulating banks. Fed rate cut: A reduction in the target interest rate set by the Federal Reserve, typically done to stimulate economic activity. Basis points: A unit equal to one-hundredth of one percent (0.01%). Used to describe small changes in interest rates or other financial percentages. CME Fedwatch Tool: A tool provided by the Chicago Mercantile Exchange that tracks the probability of the Federal Reserve making specific interest rate changes. Risk assets: Investments that carry a higher risk of losing value but potentially offer higher returns, such as stocks, commodities, and cryptocurrencies. Cryptocurrencies: Digital or virtual currencies that use cryptography for security, operating independently of a central bank. Bitcoin: The first and most well-known cryptocurrency. Valuations: The process of determining the current worth of an asset or a company. US Dollar index: A measure of the value of the U.S. dollar relative to a basket of foreign currencies. Gold prices: The market value of one troy ounce of gold.