Wall Street tumbles as Nvidia slides, investors fret that Fed may slow rate cuts

Wall Street ended sharply lower on Thursday, with steep losses in Nvidia and other AI heavyweights, as investors scaled back expectations of interest rate cuts due to inflation worries and divisions among central bankers about the U.S. economy's health. All three major U.S. stock indexes posted their steepest daily percentage declines in over a month. The U.S. government reopened after a record 43-day shutdown that had worried investors and disrupted the flow of economic data. A growing number of Federal Reserve policymakers in recent days have signaled hesitation about further interest rate cuts, pushing financial market-based odds of a reduction in borrowing costs in December to near even. Fed officials who spoke recently cited worries about inflation and signs of relative stability in the labor market after two U.S. interest rate cuts this year.

"The fundamental question is, is tariff inflation transitory and a one-time deal? And whether it is or isn't, that's why some of the Fed governors don't want to cut," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. "It's a risky bet either way, whether they cut or don't cut."

Shares fell for some of the U.S. stock market's strongest performers in recent years, as investors fretted about high valuations fueled by optimism about artificial intelligence.

Nvidia, the world's most valuable company, dropped 3.6%, Tesla fell 6.6% and Broadcom declined 4.3%.

"There's a lot of uncertainties about the state of the economy. … What we're going through is a little bit of a correction in the market in the AI sector and we're seeing market rotation," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The S and P 500 declined 1.66% to end the session at 6,737.49 points. The Nasdaq fell 2.29% to 22,870.36 points, while the Dow Jones Industrial Average declined 1.65% to 47,457.22 points.

Nine of the 11 S and P 500 sector indexes declined, led lower by consumer discretionary, down 2.73%, followed by a 2.37% loss in information technology.

Reflecting Wall Street's rotation away from tech stocks, the S and P 500 value index has gained about 1% so far this week, while the growth index has dipped 0.6%.

Walt Disney tumbled 7.8% after the media giant signaled it was preparing for a potentially prolonged fight with YouTube TV over distribution of its cable channels. Cisco Systems rallied 4.6% after raising full-year profit and revenue forecasts, betting on demand for its networking equipment.

On Tuesday and Wednesday, the Dow notched record high closes, benefiting from investors selling technology stocks and moving money into the health care sector.