Wall Street Sells Off as Nvidia Drags Tech Lower and Fed Signals Caution

Wall Street’s powerful year-long rally hit a sharp setback on Thursday, as investors punished mega-cap tech leaders and recalibrated expectations for how aggressively the Federal Reserve may cut rates heading into 2026. The sell-off, led by Nvidia and other AI bellwethers, reflects a market suddenly forced to reconsider the durability of high valuations and the Fed’s willingness to extend monetary easing.

The reversal came on a day already marked by political and fiscal uncertainty. The U.S. government reopened after a historic 43-day shutdown — the longest in modern history — which had disrupted the release of key economic data and fueled anxiety in financial markets. While the reopening removes an immediate source of instability, investors now face a central bank landscape that is far more divided than the market previously assumed.

Several Fed officials have signaled in recent days that inflation remains uncomfortably sticky, with tariff-driven price pressures and a labor market showing pockets of resilience complicating the outlook. Traders, who only a week earlier were pricing in a 70% chance of a December rate cut, have now slashed those odds to roughly a coin flip.

That recalibration alone would have been enough to cool sentiment. But the market’s most crowded trade — the AI megacap complex — amplified the damage.

Shares of Nvidia, Tesla, and Broadcom, three of the strongest performers of the past two years, sank sharply as investors questioned whether earnings growth could continue to justify valuations inflated by AI-driven optimism. For months, the market has leaned heavily on tech’s outperformance to mask weaker breadth elsewhere. Thursday’s sell-off exposed that vulnerability.

“The fundamental question is whether tariff-related inflation fades or becomes embedded,” said Jake Dollarhide, CEO of Longbow Asset Management. “That uncertainty is why some Fed governors are resisting another cut. It’s a risky bet either way — cut too soon, inflation sticks; wait too long, growth suffers.”

Market strategists described the session as a long-overdue rotation. With the S&P 500’s forward price-to-earnings ratio continuing to climb, many have argued that enthusiasm around AI has pushed valuations beyond levels justified by economic fundamentals. Thursday’s broad retreat suggests that concern is now gaining traction.

The numbers underscored the shift in tone. The S&P 500 fell 1.65%, the Nasdaq tumbled 2.28%, and the Dow dropped 1.64%. The tech-heavy Nasdaq showed the deepest losses, mirroring investors’ decision to reduce exposure to high-multiple growth stocks.

Even strong corporate news struggled to offset the bearish momentum. Cisco Systems rallied after raising its full-year revenue and profit outlook, signaling robust demand for networking equipment as companies continue upgrading digital infrastructure. But even that upside was insufficient to broadly support the sector.

Walt Disney slid after warning of a potentially prolonged dispute with YouTube TV over distribution rights for its cable channels — a clash that could threaten subscriber revenue if negotiations deteriorate.

Other pockets of the market experienced more localized turbulence. Memory-chip makers Western Digital, Seagate, and SanDisk fell after Japan’s Kioxia reported weak sales and profits, reminding investors that not all corners of the semiconductor ecosystem are benefiting from AI-driven demand.

Labor-market data added further complexity. Private-sector employment contracted at a pace of more than 11,000 jobs per week through late October, according to ADP data, while job postings in retail declined 16% year-over-year. Those metrics signal weakness in consumer-facing sectors even as the broader labor market remains stable — a split that reinforces the Fed’s uncertainty about how quickly policy should adjust.

APA Corp gained after reports that Spain’s Repsol is considering a reverse merger of its upstream unit with potential partners including the U.S. energy producer. The news injected a dose of optimism into the energy sector, which has benefited from rising consolidation activity throughout 2025.

Still, the dominant narrative remained the interplay between valuations and interest-rate expectations. For more than a year, markets priced in a smooth path toward lower borrowing costs and steady disinflation. Thursday’s session made clear that investors may now need to reconsider that trajectory.

With two rate cuts already delivered in 2025 and policymakers sending mixed signals about the path ahead, the next moves hinge on incoming inflation data and signs of consumer resilience heading into the final weeks of the year.

For now, Wall Street is once again confronting the reality that monetary policy easing may not be as predictable — or as generous — as markets previously hoped. And for tech’s megacap leaders, the recalibration is proving painful.