Wall Street kicked off the week on a sour note, with stocks and bitcoin tumbling as a risk-off attitude spread through markets.
The Dow closed lower by 557 points, a 1.18% decline. The broader S&P 500 fell 0.92%. The Nasdaq Composite dropped 0.84%.
Wall Street’s fear gauge, the VIX, jumped 13%. CNN’s Fear and Greed index traded in “extreme fear” and hit its lowest level since early April.
Stocks fell on Monday as investors’ nerves intensified ahead of two key events this week: Nvidia (NVDA), the star of the artificial intelligence boom, is set to report earnings on Wednesday.
And on Thursday, the September jobs report — long delayed because of the government shutdown — is set to be released.
These two events will provide more insight about the issues that are “top of mind” for Wall Street, according to José Torres, senior economist at Interactive Brokers.
Tech stocks have come under pressure this month as concerns persist about high valuations and substantial spending plans by major tech companies. The tech-heavy Nasdaq is down almost 5.5% since hitting a record high in late October.
Investors are trying to discern whether the AI trade is on stable foundations, and whether the Federal Reserve will pause its interest rate-cutting cycle at its policy meeting in December.
Meanwhile, Bitcoin plunged on Monday to below $90,000 for the first time in seven months, erasing its year-to-date gains. The cryptocurrency has plummeted more than 28% in just six weeks after reaching a record high above $126,000 in early October.
Tech and crypto-related stocks led the S&P 500 lower on Monday. Coinbase (COIN), a crypto exchange, fell 7%.
The S&P 500 and Nasdaq dipped below their 50-day moving averages on Monday, according to FactSet. The 50-day moving average is a key threshold of support.
“While the long-term uptrend is intact, we believe a corrective pullback/consolidation phase is already underway after the market’s six-month winning streak,” Craig Johnson, chief market technician at Piper Sandler, said in a note.
Why markets are suddenly on edge
Stocks are coming off a volatile week. Tech stocks took a bruising last week before investors swooped in on Friday to buy the dip.
Investors this week are gearing up for a potential market-moving event with Nvidia’s earnings. The chipmaker accounts for roughly 8% of the S&P 500’s market value. Nvidia shares fell 1.83% on Monday, weighing on the broader market.
“The monthly jobs report would normally dominate this week’s economic calendar, but with the AI trade struggling the past couple of weeks, Nvidia’s earnings are once again looking like a key piece of the market’s momentum puzzle,” Chris Larkin, managing director at Morgan Stanley’s E-Trade, said in an email.
The recent stock market rally is also being tested as investors adjust to the prospect that the Fed might pause its interest rate-cutting cycle at its policy meeting next month.
Traders are pricing in a 45% chance that the Fed cuts rates in December, according to CME FedWatch. That’s down from a 94% chance one month ago.
Stocks have rallied on optimism about Fed rate cuts. Nerves are mounting that the central bank may prioritize concerns about stubborn inflation.
“Data releases starting this week should provide a clearer picture for one of the key risks over the coming weeks — the December Fed meeting,” Mohit Kumar, chief strategist and economist for Europe at Jefferies, said in a note.
Investors this month have also rotated out of high-flying tech stocks and moved into sectors that have lagged and look relatively affordable.
“This rotation is both expected and welcome, as it should unwind some of the frothiness … and allow this bull market the opportunity to catch its breath before resuming its advance,” Sam Stovall, chief investment strategist at CFRA Research, said in a note.
