In the final stretch of a week of risk aversion, stocks fell amid a plunge in Big Tech and concerns about the weakening of key sectors of the economy. Losses in cryptocurrencies eased after a crash that left this asset class with practically zero returns by 2025.
The stock market slide put the S&P 500 on track to end a three-week streak of gains as U.S. consumer confidence plummeted to its lowest level in more than three years, adding to anxiety caused by the government shutdown. The situation was even worse for the Nasdaq 100, as the collapse of the artificial intelligence sector left the index on track for its worst week since April, when it entered a bear market .
After a dizzying rally from this year’s lows, concerns were raised that valuations of the most promising AI companies could reach unsustainable levels, prompting calls for caution. Technical indicators began to signal cause for caution, contributing to the pessimism generated by warnings from Wall Street executives about an overvalued market.
“Major indices are facing selling pressure this week,” said Craig Johnson of Piper Sandler. “Investors should prioritize good opportunities with a good risk/reward ratio, possibly after a healthy correction within this bull market”.
This week’s decline coincides with the end of earnings season, with investors increasingly relying on private data amid a dearth of economic numbers due to the partial U.S. government shutdown. This has left the market vulnerable to volatility, as happened in the previous session with a report that painted a discouraging employment outlook.
“The government shutdown creates additional risk because the longer it goes on, the greater its impact on the real economy,” said David Russell of TradeStation.
Although the US jobs report was not released this Friday due to the government shutdown, a survey by 22V Research found that a contraction in the labor market represents the biggest risk to stock trading. This explains the unusual sensitivity of risk assets and bond yields to any news in this regard.
The S&P 500 fell to approximately 6,680 points. The Nasdaq 100 fell 1%. An index of the world’s seven largest companies plummeted 1.5%.
Bitcoin narrowed its losses but closed the week down 8.5%. The 10-year Treasury yield was virtually unchanged at 4.09%. The dollar lost 0.2%.
“Although the jobs report will not be released on Friday due to the government shutdown, there is enough private sector payroll and layoff data to suggest the labor market is slowing,” said Glen Smith of GDS Wealth Management. “This slowdown keeps the Federal Reserve’s plans in place to cut interest rates in December and potentially into early 2026.”.
According to Seema Shah of Principal Asset Management, the economy remains on an upward trajectory even if economic growth slows towards trend levels in 2026.
“The biggest concern — and the centerpiece of the Fed debate — will be the health of the labor market,” he said. “We anticipate that the Federal Reserve will continue to reduce interest rates to prevent any weakening in employment from accelerating. “Much of the market’s optimism is based on the assumption that monetary policymakers will maintain some level of support.”
Rick Rieder, an executive at BlackRock Inc. and one of the candidates to succeed Federal Reserve Chairman Jerome Powell, He stated that the labor market is weakening and that interest rates should drop to 3%.
“We are seeing a significant weakening of the labor market,” Rieder told Bloomberg Television on a day when monthly employment data was not released due to the partial government shutdown. “If we had the figure today, I think it would reflect this situation.”
Despite the decline, capital flows remain favorable. US equity funds recorded capital inflows for the eighth consecutive week, the longest streak of the year, but most of these inflows came from cash, Bank of America Corp. reported, citing data from EPFR Global.
Traders are looking at a moment of weakness amid a multi-month bull run for stocks, but the broader market appears poised for further gains, said Tony Pasquariello of Goldman Sachs Group Inc.
“I am not saying that the risk/reward ratio is overly attractive, nor that this is the right time to take on additional risk,” the head of hedge fund coverage at Goldman Sachs wrote in a note to clients on Wednesday. «Looking ahead, I would say the balance of risks continues to favor the bulls».
