Wall Street Hits Pause: AI Trade Stumbles as Investors Await Critical Economic Data

By IndraStra Business News Desk

As the once-unstoppable AI trade hit a speed bump and investors braced for a deluge of long-delayed economic reports that could redefine the outlook for growth and interest rates, Wall Street ended a wild week with a sharp decline. U.S. stocks closed lower on Friday, erasing some of the gains spurred by the Federal Reserve's most recent rate cut, after pushing major indexes to new highs earlier in the session. As this was going on, markets overseas found solace in indications of the United States' continued resilience, reporting strong gains that underscored the uneven global sentiment.

The Fed's decision to cut rates by an additional quarter point—its third consecutive action of this kind—was primarily intended to support a labor market that was beginning to show signs of strain. However, the vote was not unanimous; two policymakers argued for staying put despite persistent concerns about inflation, while three policymakers pushed back. However, the central bank's statement suggested a more accommodating course for 2026, which sparked a midweek surge that saw the S&P 500 close at a record high on Thursday and the Dow reach new highs.

Overseas, that positive attitude persisted. Benchmarks in Asia saw a strong recovery: China's Shanghai Composite increased by 0.7 percent, Hong Kong's Hang Seng increased by 1.75 percent, and South Korea's Kospi increased by 1.3 percent. At the opening, major gauges in Europe were lifted by gains in mining, financial, and industrial stocks.

However, the tech party quickly fizzled out back home. After the chip giant announced thinner margins ahead, Broadcom shares fell 11.4%, shattering the myth that unrelenting AI spending would yield fat profits indefinitely. Heavyweights like Nvidia lost 3.3 percent, while Oracle continued its decline with a 4.5 percent decline after a dismal outlook. Less well-known AI strategies suffered greater losses: Oklo fell 15.1%, CoreWeave fell 10.1%, and SanDisk plummeted 14.7%. The damage spread throughout the industry; tech stocks as a whole dropped 2.9 percent, and the Philadelphia Semiconductor Index recorded its worst day since October with a 5.1 percent decline.

The market as a whole fell along with the rout. The Dow managed a 1.05 percent weekly gain despite losing 245.96 points, or 0.51 percent, to close at 48,458.05. The S&P 500 finished the week down 0.63 percent after losing 73.59 points, or 1.07 percent, to close at 6,827.41. With a weekly loss of 1.62 percent and a drop of 398.69 points, or 1.69 percent, to 23,195.17—its lowest close since late November—the tech-heavy Nasdaq took the brunt of the damage. On both the NYSE and Nasdaq, sellers predominated, with decliners surpassing advancers and volume surging to 18.08 billion shares, significantly higher than the recent average.

“It’s not surprising that the market’s selling off today after a pretty solid couple of weeks,” said Anthony Saglimbene, chief market strategist at Ameriprise. He pointed to the sudden “disruption in the AI theme” driving money into safer havens like consumer staples, which eked out a 0.9 percent gain. “The market is probably a little bit cautious heading into those big numbers next week.”

And those figures are particularly significant. Soon to be released, the November payrolls report is expected to add a pitiful 35,000 jobs—part of a slow trend that has averaged just 40,000 per month since April. Even these modest numbers may be inflated, according to Fed Chair Jerome Powell, who has warned that the actual pace may be closer to a 20,000 monthly loss. The delay was caused by a 43-day government shutdown earlier in the year, which crammed three months' worth of retail sales, inflation, and employment data into the short window between the Fed's December and January meetings.

“There has been a lack of clarity for investors,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Strong corporate earnings certainly helped to support the markets. The Fed and anticipated rate cuts helped to provide a little bit of a boost. But now it’s time to turn our attention back to the underlying economy and what path we’re on.”

David Seif, chief economist for developed markets at Nomura, echoed the point: “Because of the government shutdown and the catch-up schedule, we have essentially three months of both labor and inflation data coming out between the December and January Fed meetings.”

Despite the Friday stumble, the S&P 500 sits up a robust 16 percent for 2025, building on the bull run that started in October 2022 and has now delivered 90 percent cumulative gains. But with holidays approaching and trading desks thinning out, analysts are flagging risks of sharper swings and year-end profit-taking. “If we start getting negative prints around jobs, you can’t avoid the recession discussion,” warned Marvin Loh, senior global macro strategist at State Street. Morgan Stanley economists added that more cuts could come in January and April—if the job market steadies and inflation finally eases.

Currencies and commodities presented a similar picture of caution elsewhere. While oil saw early gains but remained headed for losses due to concerns about oversupply and easing tensions in Ukraine, gold was on track for a weekly increase as bets on additional Fed easing increased. Due to pressure from rate expectations and higher-than-expected jobless claims, the dollar remained close to an eight-week low.

In the second term of President Trump, ordinary Americans are still struggling with sticker shock away from the trading floors. As the economy recovers from an early-year decline, official statistics show that job creation is slowing, unemployment is at a four-year high, and prices are remaining stubbornly high. Affordability has become a hot topic with the upcoming midterms, making Republicans nervous about whether financial hardship could undermine their majorities.

Despite the frustration, conversations with Trump supporters reveal nuance. While some point to cheaper gas as a bright spot, many complain about steeper tabs at grocery stores and restaurants, particularly when it comes to meat and coffee. Some criticize the tariff rollout for increasing costs and uncertainty. However, the majority support the president, blaming deeper structural problems, market concentration, corporate greed, or a hangover from previous spending binges. Nearly three-quarters of Trump supporters approved of his handling of the cost of living, according to a Reuters/Ipsos poll conducted in early December. This represents a 10-point increase from a smaller survey conducted in November. 

As the week ended on a sour note for U.S. equities, with AI doubts and data anxiety in the air, the bigger picture remains one of resilience tempered by risks. “For the most part, it’s been a very, very good year for risk assets,” Loh said. “If you get some shaky numbers or you don’t get a resounding reason to add risk, it could add volatility in the market just because of the thinner markets.”

All eyes now turn to the incoming data deluge—for clues on whether the economy can stick the landing, how far the Fed will go, and what it all means for markets and politics heading into 2026.

IndraStra Global is now available on
Apple News, Google News, Feedly, Flipboard, and  WhatsApp Channel

COPYRIGHT: This article is published under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. https://creativecommons.org/licenses/by-nc-nd/4.0/

REPUBLISH: Republish our articles online or in print for free if you follow these guidelines. https://www.indrastra.com/p/republish-us.html