A Rollercoaster Week for Global Markets: AI Hype Tested, Rate Cuts Questioned

Yesterday was another volatile session in the U.S. markets as major indices swung wildly throughout the day. The S&P 500 surged nearly 2% early on, briefly setting up what looked like its strongest day since May, before momentum vanished and sentiment flipped. By early afternoon it was down roughly 0.9%. The Dow slipped 290 points and the Nasdaq weakened by 1.1%, driven largely by renewed pressure on the year’s biggest winners.

Wall Street faces sharp swings as AI stocks and crypto volatility reshape market sentiment.

Much of the downside came from the same areas that fuelled the rally in the first place, mega-cap tech, AI leaders, and crypto-linked names. Nvidia opened with a 5% jump after delivering another blockbuster earnings report and issuing a revenue forecast far ahead of expectations. Analysts at UBS went as far as saying it’s “very hard to see how this stock does not keep moving higher from here,” arguing that the AI-infrastructure boom continues to lift all boats.

But the optimism didn’t last. Nvidia’s early gains evaporated and the stock slid into negative territory as the broader market sold off. Because Nvidia is now the largest company in the S&P 500, the reversal had an outsized impact on the index.

The debate around whether AI is overheating hasn’t gone away. Investors are increasingly asking whether the billions being spent on chips and data centres will translate into the level of profit and productivity the hype suggests. Nvidia may be guiding for another $65 billion in chip sales over the next three months but companies like Amazon still need to prove the economic payoff of these investments. A recent Bank of America survey showed fund managers now view “AI overinvestment” as the biggest tail risk facing markets.

The crypto space added another layer of pressure as Bitcoin plunged below $87,000, down sharply from almost $125,000 just a month ago. Coinbase, Robinhood and other crypto-exposed stocks followed suit.

Not all the news was sour. The latest U.S. jobs report brought a bit of relief to rate-sensitive sectors. Hiring in September came in stronger than expected, suggesting ongoing economic resilience, while a slight uptick in unemployment could give the Federal Reserve more room to cut interest rates in December. Traders now see about a 41% chance of a cut, up from 30% the day before, although markets remain split on the Fed’s next move.

Bond markets remained steady with the 10-year Treasury yield easing to 4.09%. Overseas markets had a brighter tone, with gains across Europe and a strong showing in Asia, led by Japan’s Nikkei up 2.6% and South Korea’s Kospi up 1.9%.

Global markets remain hypersensitive to two forces: the trajectory of AI-related stocks and the Federal Reserve’s next move on interest rates. Until investors gain clarity on both, expect the volatility to continue.

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