US Stock Market Stays Volatile as Fed Rate Cut Hopes Rise

US Stock Market Remains Unsettled After Volatile Week

Stocks Drift After a Turbulent Week

The US stock market experienced another day of instability on Friday, fluctuating between gains and losses but with less dramatic swings than in previous sessions. By late morning, the S&P 500 edged up 0.1%, the Dow Jones Industrial Average gained 217 points, or 0.5%, while the Nasdaq slipped 0.2%.

Fed Signals Stir Rate-Cut Hopes

Investor sentiment saw a boost following remarks from the president of the Federal Reserve Bank of New York, John Williams, who suggested there was potential for further adjustments to interest rates. His statement, made at a conference in Chile, was interpreted by many as a sign that he might favor a rate cut in December—a move that could be significant for Wall Street given recent record-high stock prices driven by expectations of lower rates.

However, other Federal Reserve officials remain cautious, citing persistent inflation and expressing reluctance to support rate cuts this year. This divergence in outlook among policymakers has added to market volatility.

AI-Fueled Tech Volatility

Uncertainty surrounding high-flying tech stocks tied to artificial intelligence, cryptocurrencies, and other sectors remains elevated. Thursday saw one of the sharpest market reversals since April. Stocks initially surged after Nvidia’s strong earnings report calmed fears of an AI sector bubble. However, the rally quickly faded, leading to steep losses and the largest single-day reversal since tariffs imposed by President Donald Trump generated similar turmoil.

Concerns persist about whether the surge in spending on AI chips and data centers by major players such as Amazon and Meta Platforms will translate into long-term profitability and productivity improvements. Nvidia shares erased early gains to close 2.8% lower, while Palantir Technologies dropped 4.1% after similar initial advances.

Crypto Swings and Other Moves

Major swings continued in other areas as well. Bitcoin briefly fell below $81,000 before rebounding to around $83,000, marking a substantial drop from its nearly $125,000 peak last month and returning to levels seen during April’s instability.

Retailers and Homebuilders Lead Gains

Outside the tech sector, most stocks saw gains. Retailers led some of the day’s advances—Gap rose 5.1% after reporting better-than-expected quarterly earnings and strong sales across its key brands. Ross Stores jumped 6.5% on positive results and an upgraded sales forecast for the holidays. Homebuilders also rallied, with D.R. Horton up 6%, PulteGroup rising 5.3%, and Lennar gaining 5.1%, supported by renewed optimism for lower interest rates that could spur homebuyers.

Bond Yields Fall as Inflation Expectations Ease

In the bond market, yields on Treasury notes dropped following Williams’ speech, with the 10-year note falling to 4.06% from 4.10% the day before. Traders have increased the probability of a December rate cut to 75%, up from 39% just one day prior, according to CME Group.

Further easing was seen after the University of Michigan reported that consumers’ inflation expectations for the coming year and over the long term had improved from last month, possibly giving the Fed more flexibility in policy decisions.

Global Markets Mixed

Internationally, stock indexes ended mixed in Europe, while Asia saw notable declines after Wall Street’s rapid reversal. Japan’s Nikkei 225 dropped 2.4% and South Korea’s Kospi fell 3.8%.

Outlook

The market’s fragility is expected to persist as investors weigh:

• Central bank policy signals and the path of interest rates
• Valuations and earnings durability for AI-linked tech leaders
• Consumer resilience, retail trends, and the housing outlook
• Global economic conditions and cross-market volatility