Wall Street “Fear Gauge” Surges as AI Hype Fades
An early Thursday rally quickly unraveled into broad selling as renewed doubts over the artificial-intelligence trade resurfaced following Nvidia’s latest earnings.
Nvidia shares initially popped overnight after the chipmaker posted its strongest revenue beat in two years, with CEO Jensen Huang calling demand for its Blackwell Ultra GPUs “off the charts.” The jump helped lift other AI stocks—briefly.
By midmorning in New York, sentiment flipped. A wave of selling hit equities and cryptocurrencies, including bitcoin, while investors rotated into bonds. Treasury yields retreated as prices rose, signaling a growing risk-off mood.
“This is a coordinated risk-off move,” said Mark Hackett, chief market strategist at Nationwide. He noted investor sentiment had turned “abysmal.” The Cboe Volatility Index—the VIX, or Wall Street’s famous “fear gauge”—spiked 11.7% to 26.05, its highest close since April.
Stocks slid steadily into the afternoon. The S&P 500 suffered its largest intraday reversal since April 8, swinging 3.5% from a morning high before closing down 1.6% at 6,538.76. The Nasdaq Composite dropped 2.2%—its worst day since Nov. 13—while the Dow fell 0.8%. All three major indexes posted their biggest blown gains since April.
Market pros offered several explanations for the sudden reversal. Some strategists argued that Nvidia’s blockbuster results weren’t enough to guarantee that Big Tech’s massive AI investments will deliver the returns investors expect. Others pointed to shrinking liquidity in the financial system as money continues to drain from the Federal Reserve’s reverse repo facility—a trend that typically pressures risk assets.
“Simply put, there is much less liquidity in the market today,” said Michael Kramer of Mott Capital Management. Meanwhile, Andy Constan of Damped Spring Advisors said Nvidia’s report may simply have left investors wanting more.
Many traders had hoped Nvidia’s results would break the market’s slump that began in early November. With that rebound failing to materialize—and earnings season winding down—Hackett warned the market may be entering a “news drought” that could limit upside.
Fed Uncertainty Adds Pressure
Fresh labor-market data added another layer of confusion. Fed-funds futures saw rising odds of a December rate cut after the delayed September jobs report showed unemployment ticking up to 4.4%, the highest in four years. But the report also showed 119,000 jobs created—well above expectations—muddying the overall message.
“The bigger story is uncertainty over the September jobs report and whether it will have a negative or positive impact in December,” said Daniel Tenengauzer of InTouch Capital Markets. With mixed signals, several analysts say there isn’t enough evidence of labor-market weakness to justify a cut.
J.P. Morgan economist Michael Feroli noted the data offer no clear case either way. Brian Mulberry of Zacks Investment Management said he believes the Fed may simply hold steady in December, which could push expectations for future rate cuts further out.
A Tough Stretch for Stocks
The broader market has been struggling all month. The S&P 500 is now more than 5% off its late-October record high, while the Nasdaq is down nearly 8%—approaching correction territory. Small caps have fared worse: the Russell 2000 has slid 8.5% from its recent peak.
Thursday’s drop put the S&P 500 on pace for its worst November since 2008. After six straight months of gains through October—the longest streak since 2021—some analysts say the decline across stocks and crypto may simply reflect year-end profit-taking.
Bitcoin fell 3.5% to $86,337. Nvidia closed 3.2% lower at $180.64. The Dow held up better than the other major indexes, slipping 0.8% to 45,752.26.
One bright spot came from consumer-staples stocks after Walmart posted strong earnings. The retailer surged 6.5% to $107.11, helping the consumer-staples sector stand as the only gainer among the S&P 500’s 11 industries.
