Wall Street reversed early gains on Thursday as a mixed employment report diminished hopes for further easing by the Federal Reserve this year and as worries resurfaced over inflated tech valuations, unassuaged by Nvidia’s better-than-expected earnings report.
All three major U.S. stock indexes closed sharply lower, with weakness in artificial intelligence-related momentum stocks dragging the tech-heavy Nasdaq down the most. Benchmark Treasury yields dipped and bitcoin tumbled, offering further signs of market participants’ souring risk appetite.
Canada’s main index followed along pretty much in lockstep with U.S. indexes during the session, closing at a two-week low.
Chipmaker and AI darling Nvidia posted its hotly anticipated results after Wednesday’s closing bell, delivering consensus-beating earnings and stronger-than-expected forward guidance, which initially soothed fears over inflated valuations in the sector.
But jitters over inflated tech stock prices returned as the session progressed, resulting in the Nasdaq’s widest one-day swing since April 9, a difference of 4.9 percentage points. Nvidia shares jumped to an early gain of 5% but then dropped to a loss of 3.2%.
“There was a lot of anticipation about Nvidia and it was a good report,” said Thomas Martin, senior portfolio manager at GLOBALT in Atlanta. “But the other questions are still there: What is happening with inflation? Employment? What is the Fed going to do? There’s still confusion about tariffs.”
“People just aren’t done selling yet,” Martin added. “The market is adjusting, this is what an adjustment process looks like.”
U.S. employment data, unavailable throughout the six-week federal government shutdown, reported more jobs than expected, but a surprising uptick in the unemployment rate suggested a softening in labour market conditions. A separate report showed ongoing jobless claims hitting their highest level in nearly four years.
But the September jobs report is stale, and because of the decision to combine the October and November reports, the U.S. Federal Reserve will have just one month of dated employment numbers to inform its rate decision at next month’s policy meeting.
Financial markets are pricing in a 39.8% likelihood that the central bank will implement its third interest rate cut of the year at the meeting, down from about 50% at the same time last week and a near certainty a month ago, according to CME’s FedWatch tool.
But not everyone agrees.
“The Fed is going to have to go on its own guts, and from a contrarian viewpoint, I believe that they will cut by 25 basis points,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“The rhetoric that we’re hearing from a lot of Fed members is just playing it safe,” Cardillo added. “But I think the dovish members are probably going to win, and they are going to be right.”
The CBOE Market Volatility index, considered a barometer of investor anxiety, closed at its highest level since late April.
The Dow Jones Industrial Average fell 386.51 points, or 0.84%, to 45,752.26, the S&P 500 fell 103.40 points, or 1.56%, to 6,538.76 and the Nasdaq Composite fell 486.18 points, or 2.15%, to 22,078.05.
The S&P/TSX Composite Index ended down 371.86 points, or 1.2%, at 29,906.55.
The Toronto market’s technology sector fell 2.6%, with shares of electronics equipment firm Celestica Inc down 9.5%.
The materials group, which includes metal mining shares, ended 4.5% lower, as gold and copper prices declined.
Nine of the 10 major TSX sectors ended lower. The exception was consumer staples, which added 0.9%. It was helped by a gain of 1.4% for the shares of food retail company Loblaw Companies Ltd.
Altus Group Ltd was another bright spot. Shares of the real estate services company rose 5.4% as the company provided strategic updates at an Investor Day.
The yield on benchmark U.S. 10-year notes fell 3.1 basis points to 4.1%, from 4.131% late on Wednesday.
In cryptocurrencies, bitcoin fell 4.44% to $86,514.72.
Oil prices initially got a boost from a bigger-than-expected draw on U.S. crude stockpiles, but reversed those gains amid the push for a U.S.-brokered end to Russia’s war on Ukraine. U.S. crude dipped 0.55% to settle at $59.14 per barrel, while Brent settled at $63.38 per barrel, down 0.2% on the day.
Gold prices inched lower as investors assessed the delayed jobs report. Spot gold fell 0.06% to $4,078.15 an ounce. U.S. gold futures fell 0.18% to US$4,070.50 an ounce.
Reuters, Globe staff