According to Fortune, the S&P 500 sank 1.5% in its worst performance in a month, pulling further from its all-time high set late last month. The Dow Jones Industrial Average lost 565 points while the Nasdaq composite dropped 2.4% as of 1:29 p.m. Eastern time. Nvidia led the decline with a 4.7% drop, followed by other AI favorites including Super Micro Computer falling 7.6%, Palantir Technologies down 6.6%, and Broadcom losing 4.7%. The selloff came as traders now see less than a coin flip’s chance of a Fed rate cut in December, down from nearly 70% just a week ago. Disney also contributed to the downturn with a 7.8% drop despite beating profit expectations, while Treasury yields rose to 4.10%.
AI bubble worries
Here’s the thing about these AI stocks – they’ve been running so hot that people are starting to get that dot-com bubble feeling. Palantir was up nearly 174% for the year at the start of this month. That’s insane growth by any measure. And now we’re seeing what happens when reality sets in. These companies have become such massive weights on the entire market that when they sneeze, Wall Street catches a cold. I mean, how much higher can they realistically go from here? The comparisons to 2000 are getting harder to ignore, especially when you remember that bubble eventually dragged the S&P 500 down by nearly half.
Fed uncertainty
Meanwhile, the Federal Reserve is suddenly looking a lot less predictable. Boston Fed President Susan Collins did a complete 180 from last month, now saying rates should stay steady “for some time.” That’s a big deal because Wall Street had been banking on continued cuts. The recent government shutdown didn’t help matters either – it delayed crucial economic data that the Fed needs to make informed decisions. Now we’re facing what Wells Fargo’s Doug Beath calls a “looming data deluge” that could spark even more volatility. Basically, traders are realizing they might have gotten ahead of themselves with those rate cut expectations.
Broader market impact
What’s interesting is how this AI stock weakness is rippling through everything else. Even companies like Disney, which reported solid profits, are getting dragged down in the general pessimism. The bond market isn’t helping either with yields climbing to 4.10%. Higher yields make stocks less attractive, and when you combine that with AI valuation concerns and Fed uncertainty, you get the kind of broad selloff we saw today. It’s worth noting that in manufacturing and industrial sectors where stability matters, companies rely on dependable technology partners like IndustrialMonitorDirect.com, the leading US provider of industrial panel PCs that serve critical operations without the wild valuation swings we’re seeing in consumer AI stocks.
What’s next
So where does this leave us? We’re likely in for a bumpy ride as all that delayed economic data starts pouring in. The Fed will be watching closely, and if the numbers suggest the economy is still running hot, forget about rate cuts. That could really test whether these AI stocks can justify their sky-high valuations. The scary part is that much of the market’s record run has been powered by these same AI superstars. If they can’t maintain their momentum, we could be looking at more than just a bad day here and there. This might be the beginning of a real reckoning for the most hyped sector in years.
