Stocks Sink as Fed Clouds Gather Before Data Storm: Markets Wrap
(Bloomberg) — Heavy selling resumed on Wall Street, halting a weeklong respite spurred by the US government reopening, as hawkish statements from Federal Reserve officials ahead of a deluge of economic data spurred traders to dump risky assets from tech stocks to crypto.
With optimism about the shutdown’s resolution priced in, concern about valuations emerged, prompting a selloff in high-flying tech giants. Under the surface, some market observers pointed to a rotation into more defensive names. It was the third time in two weeks the S&P 500 fell more than 1%. Bitcoin sank below $100,000 and is down over 20% since early October.
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President Donald Trump signed legislation to end the longest closure in US history, but it could still take a while for the federal bureaucracy to fully restart. The October jobs report will skip the unemployment rate, US top economic adviser Kevin Hassett told Fox News’ America’s Newsroom.
As Fed officials signaled caution about future rate cuts, market-implied odds of a December reduction fell below 50%.
In separate statements, Fed Bank of St. Louis President Alberto Musalem said officials should move cautiously on rates with inflation running above target, while Cleveland counterpart Beth Hammack noted policy should remain “somewhat restrictive.” Minneapolis Fed President Neel Kashkari said he didn’t support the last cut and is undecided on December.
Chair Jerome Powell said last month that a reduction is “not a foregone conclusion,” with the decision to be premised on incoming information. Some traders may be concerned that the omission of key data due to the shutdown may bolster arguments for officials to stand pat.
“It’s an expensive market and expensive markets need lower rates to help justify today’s elevated valuations,” said Matt Maley at Miller Tabak + Co. “So, the idea that this could change quickly with so much data coming out all at once, this uncertainty is raising some fear in the marketplace.”
The S&P 500 lost 1.7%. The Nasdaq 100 slid 2.1%. Measures of both megacaps and smaller firms each tumbled almost 3%. Wall Street’s closely watched gauge of stock volatility hit 20.
Treasury 10-year yields rose five basis points to 4.12%. The dollar fell.
With the flow of releases resuming only gradually, traders are left with continued data void, which means price action could be driven more by sentiment and positioning than by hard data, according to Fawad Razaqzada at Forex.com.
“The question now is whether the market’s recent exuberance has run its course,” he said. “After a stellar rally since April, technology shares look increasingly overvalued and overstretched, with sentiment tempered by a lack of fresh catalysts and a lull in economic data.”
Over the past few sessions, Razaqzada said that a noticeable rotation has occurred in stocks, with traders moving out of high-growth names and back into defensive and value-oriented sectors.
“Is this a sign that risk appetite is fading, or merely the sort of rotation one expects in a healthy bull market? Time will tell,” he said. “But it’s worth noting that insider selling within the tech space has picked up lately, which rarely bodes well. Traders would do well to stay alert.”
With earnings season largely behind us, investors see this as a “good profit-taking opportunity,” noted Michael O’Rourke at JonesTrading.
“It’s just a normal market rotation away from what’s been working,” said Chris Grisanti at MAI Capital Management. “It’s probably healthy, though boy, it’s painful in the short term.”
Grisanti says he’s “not a buyer on weakness yet,” but has the “usual suspects” on his screen for “nibbling” if we go lower.
“Emphasis here on the fundamentals which remain strong, even though the market is expensive,” he said.
“Equities had an amazing run since April (without a breather) and it is possible that we are just seeing the pullback many were expecting in October – delayed by the government shutdown,” said Paul Ticu at Calamos Investments.
Ticu says he’d use any market weakness to “build long-term strategic exposures.”
Investors are taking some profits in megacap tech after an extended AI driven run and reallocating toward more reasonably valued sectors including industrials, financials, energy and healthcare, according to David Miller at Catalyst Funds.
At the same time, higher-quality cyclicals are catching a bid as investors position for a slower but steady economic environment where earnings visibility matters more than hyper-growth narratives, he added.
“A rotation out of tech is arguably the healthiest development we’ve seen all year,” Miller said. “What we’re seeing now is constructive: investors are rediscovering the parts of the market that have been overshadowed by the AI narrative. That broadening gives the rally better footing.”
Growth and AI megacaps have done most of the heavy lifting in recent months, and a broadening of participation is healthy for a sustainable rally, noted Mark Malek at Siebert Financial.
“The question now is whether this discrepancy in performance marks the beginning of a secular rotation, or if it’s simply the market being the market,” he said.
“We do not think we are in an AI bubble yet, largely because when capacity is turned on, every bit of it is backlogged and oversubscribed,” said Carol Schleif at BMO Private Wealth. “The spending on it has so far been largely orderly and it’s still early in the AI story.”
While some market participants are worried about the increasingly debt financed nature of the spending, she noted that balance sheets across the hyperscalers are largely under-levered, with some room to increase their funding sources, which may include equity or even cash.
The slide in tech is making Nvidia Corp.’s earnings next week more important than ever, according to veteran Wall Street strategist Louis Navellier. A robust outlook by Chief Executive Officer Jensen Huang is key to a strong year-end for the stock market, he said.
“We expect markets to grind higher – though likely with continued volatility,” Schleif said. “The gears of the government should be working again soon, and while that is a relief for markets and the economy, there is still plenty of uncertainty, particularly around the missed inflation and jobs data and how these fronts have been faring.”
While the data blackout has made the Fed’s job difficult, she still expects officials to cut interest rates next month.
Market odds of another Fed rate cut in December have dropped from a near-certainty before the last Fed meeting.
To Don Rissmiller at Strategas, this matters because there has been a worrying package of US data recently, but there’s been lack of official government reports to validate the extent of this weakness.
“The US shutdown has ended, but there will be lingering disruptions for several months,” he said. “It’s understandable that monetary policymakers want to move prudently – but this leaves open the possibility that US labor market conditions weaken further in the fourth quarter.”
Stubbornly high inflation and continued weakness in the labor market are driving a growing divide among Fed officials on the best path ahead for interest rates.
“We would shift to a December skip/January cut if we thought a one meeting delay for more data offers a plausible way to resolve these stark differences but we do not think it does,” said Krishna Guha at Evercore. “We think a skip creates more problems for Powell than it solves, which is why we still end up favoring a ‘hawkish cut’.”
Of course, greater clarity on the performance of the underlying real economy could also bolster the case for a quarter-point move if the new information reveals further softening in the labor market and relatively benign inflation – both of which are active debates, to be sure, according to Ian Lyngen, Vail Hartman and Delaney Choi at BMO Capital Markets.
“Despite the fact that investors have long awaited the resumption of dataflow, the upcoming reports will still likely be met with some skepticism given the data-collection delays and timetable shifts,” they said.
In addition, the reopening of the US government doesn’t mean the flow of economic data will be restored straight away, according to Thomas Ryan at Capital Economics.
“Survey-based data not collected in October during the funding lapse will take weeks to gather, process and quality check. Publishing missing field-collected data, like consumer prices, is probably an impossible task,” he said.
When it comes to November data, things might take a while, according to Chris Fasciano at Commonwealth Financial Network. There will be a limited data collection period once government employees return to work. Thanksgiving week will also complicate these efforts, he said.
“This uncertainty complicates things for the Fed, which wasn’t necessarily united after its meeting last month about the potential for another interest rate cut in December,” he added.
For investors, the message is clear: “stay nimble,” said Seema Shah at Principal Asset Management.
“In an environment where information is scarce and cross-currents risk evolving into rip tides, reactions can be magnified, and portfolio flexibility matters more than bold conviction,” she noted.
Corporate Highlights:
US airlines are kicking off an unprecedented effort to shake off the travel chaos caused by the government shutdown and reboot their networks in time for the busy Thanksgiving holiday travel period. Boeing Co. factory workers in the St. Louis area voted to accept the company’s latest five-year contract offer, ending the longest strike at the planemaker since 1948. Cisco Systems Inc. climbed after the network-equipment giant boosted its 2026 forecast, showing progress in its effort to capture more artificial intelligence spending. Apple Inc. introduced a new program Thursday that lets the iPhone maker collect revenue from mini apps and games within larger “super apps,” an attempt to capitalize on a growing trend among software developers. Tencent Holdings Ltd. has struck a deal with Apple. that will see the iPhone maker handle payments and take a 15% cut of purchases in WeChat mini games and apps, resolving a high-profile dispute that’s dogged the world’s largest smartphone arena. Tencent posted a faster-than-anticipated 15% rise in revenue, sustaining the steady growth that’s helped the social media leader attract investors despite eschewing splashy investments in AI infrastructure. Alibaba Group Holding Ltd. is preparing an overhaul of its main mobile AI app in coming months to help it more closely resemble OpenAI’s ChatGPT, a key step in a broader effort to catch rivals and eventually earn money off individual users. Baidu Inc. released the latest iteration of its flagship AI models, trying to keep up in the highly competitive Chinese artificial intelligence arena. Google is under investigation by European Union antitrust watchdogs over concerns it unfairly demotes some news results in a probe that risks adding to its €9.5 billion ($11 billion) EU fines tally and worsening fraught relations with the Trump administration. Verizon Communications Inc. is discussing plans to announce job cuts across the company next week, according to people familiar with the wireless carrier’s plans, a major step in a transformation led by new Chief Executive Officer Dan Schulman. Walt Disney Co. reported sales that fell short of Wall Street estimates and said a slate of big-budget films, including a new Avatar picture, will weigh on results for the first quarter of its new fiscal year. Pfizer Inc. is looking to sell its remaining stake in Covid-19 vaccine partner BioNTech SE, a remnant from one of the pandemic’s most lucrative collaborations. A group of First Brands Group creditors is demanding new, independent advisers for company units that issued nearly $2.5 billion in off-balance-sheet debt, claiming conflicts of interest threaten to disrupt the sprawling insolvency case of auto-parts maker. Uber Technologies Inc. is expanding the availability of its reserved rides option to include popular ski destinations, part of a larger effort to lure wealthy consumers toward more premium services. Unionized Starbucks Corp. baristas are launching a wave of walkouts Thursday, a work stoppage they say could grow to become their biggest strike to date.
What Bloomberg Strategists say…
“The focus is quickly turning to a deluge of economic data that offers traders minimum visibility on the path forward for rates. It seems they’re erring on the side of caution and leaning toward a pause next month as Fed policymakers parse signals from the delayed releases, which ultimately shapes up to be a short-term negative for equity markets.”
—Kristine Aquino, Managing Editor, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
The S&P 500 fell 1.7% as of 4 p.m. New York time The Nasdaq 100 fell 2.1% The Dow Jones Industrial Average fell 1.7% The MSCI World Index fell 1.3% Bloomberg Magnificent 7 Total Return Index fell 2.7% The Russell 2000 Index fell 2.8% S&P 500 Equal Weighted Index fell 1.2% Currencies
The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.3% to $1.1632 The British pound rose 0.4% to $1.3187 The Japanese yen rose 0.1% to 154.58 per dollar Cryptocurrencies
Bitcoin fell 3.3% to $98,559.7 Ether fell 6.8% to $3,189.54 Bonds
The yield on 10-year Treasuries advanced five basis points to 4.12% Germany’s 10-year yield advanced four basis points to 2.69% Britain’s 10-year yield advanced four basis points to 4.44% The yield on 2-year Treasuries advanced three basis points to 3.60% The yield on 30-year Treasuries advanced five basis points to 4.71% Commodities
West Texas Intermediate crude rose 0.3% to $58.67 a barrel Spot gold fell 0.3% to $4,181.13 an ounce ©2025 Bloomberg L.P.
