AI Rally Reverses as Wall Street Loses Its Nerve

Sometimes the market reminds you 'not to sell the bull’s skin before you’ve actually caught it.'

Yes, I know the original saying uses a bear, but given how the session unfolded, swapping it for a bull feels far more appropriate. Early optimism isn’t the same as certainty, and on Thursday that became painfully clear: what looked like the start of another AI-powered upswing quickly reversed, leaving the bulls empty-handed by the closing bell.

Markets Reverse Hard as AI Momentum Fades

After Nvidia (NVDA | –3.15%) reassured investors on Wednesday with stronger-than-expected quarterly results, I expected at least a bit of follow-through. The stock initially pushed nearly 5% higher and pulled the Nasdaq along with it.

But that enthusiasm evaporated rapidly. Nvidia’s rally reversed, and the Nasdaq ended the day off roughly 2%, as investors stepped back from high-beta tech and AI names.

Earnings season is essentially wrapped up, and without fresh catalysts, stretched valuations suddenly felt very exposed. Combine that with growing interest-rate uncertainty, and the early bullish mood didn’t stand a chance.

Labor Data Adds More Fog to the Fed Outlook

The macro picture did little to help. New US labor market data delivered a confusing mix:

• September job creation: +119,000 (well above expectations)

• August revision: from +22,000 to –4,000, a sizeable downgrade

• Unemployment rate: up to 4.4%, the highest in four years

• Philly Fed index: showing moderate recovery

• Weekly jobless claims: stable, no major surprises

This split - stronger hiring, rising unemployment - puts the Federal Reserve in a difficult position. We already saw in the October meeting minutes that some policymakers were hesitant about cutting rates in December. Thursday’s data only reinforced that uncertainty.

Rate-cut probabilities for December slid to below 40%, reflecting increasing doubts that monetary policy will ease this year.

AI and Tech Stocks Take a Beating

As rate worries resurfaced, tech and AI stocks bore the brunt of the selling pressure.

AMD (AMD | –7.84%) suffered a heavy reversal, despite announcing a multibillion-dollar AI partnership backed by Saudi Arabia.

Micron Technology (MU | –10.87%) was among the hardest hit, extending its recent volatility.

Oracle (ORCL | –6.58%) weakened further as investors rotated away from AI-infrastructure plays.

Crypto stocks were dragged down as well. Bitcoin’s 4.5% intraday drop unleashed sharp declines in crypto-exposed equities:

Coinbase (COIN | –7.44%)

Robinhood (HOOD | –10.11%)

On days like this, correlation comes back with a vengeance.

Corporate Highlights: Winners and Losers

Not everything traded in the red, but the winners were few and far between.

Walmart Shines on Raised Outlook

Walmart (WMT | +6.46%) posted a strong quarter and raised its full-year guidance, a welcome surprise in a market that needed good news. The retailer now expects:

• Revenue growth of 4.8%–5.1%

• EPS of $2.58–$2.63

The results suggest US consumer spending remains resilient, at least for essentials.

Palo Alto Networks Slips Despite Beating Estimates

Palo Alto Networks (PANW | –7.40%) delivered better-than-expected quarterly results and announced a $3.35B acquisition of Chronosphere. Even so, cautious guidance and broad tech weakness weighed heavily on the stock.

Bath & Body Works Collapses

Bath & Body Works (BBWI | –24.81%) delivered one of the day’s most painful surprises, with a disappointing quarter and lowered outlook sending the stock sharply lower.

Amazon and Alphabet Also Cool Off

Amazon (AMZN | –2.49%) slid along with the broader tech sector, while Alphabet (GOOGL | –1.15%) ended its multi-day winning streak that had been fueled by news of Berkshire Hathaway’s stake.

Rates, Currencies, and Commodities

• The 10-year Treasury yield dipped to 4.10%, reflecting a modest flight to safety.

• The euro firmed to 1.1532 against the dollar.

• Oil eased by another half percent amid renewed concerns about global demand.

Nothing dramatic but all consistent with a market shifting back into risk-off mode.

My Take

Thursday’s action underscores how fragile the AI-driven rally really is when macro uncertainty intrudes. Nvidia delivered, but one earnings report can’t carry an entire sector on its shoulders, not when rate-cut expectations wobble and labor data adds more questions than answers.

Long-term, AI remains a powerful structural theme. Short-term, though? Expect turbulence. Lots of it.

Still, where there’s volatility, there’s opportunity. I’ll be watching closely whether this downturn deepens into a broader rotation or whether buyers step back in now that some of these names have given up a good chunk of last week’s gains.

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Kristoff - ChartMill

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