Wall Street Extends Losses on AI Valuation Fears, Hawkish Fed

Key Takeaways:

*Wall Street extends decline, with the Nasdaq plunging nearly 2% amid elevated volumes, signaling potential distribution and waning risk appetite.

*AI-led sell-off deepens, as heavyweight stocks like Nvidia and Tesla drag markets lower alongside mixed corporate earnings.

*Powell’s hawkish stance pressures sentiment, curbing bets on a December rate cut and reinforcing a “higher-for-longer” narrative as labor data softens.

Market Summary:

U.S. equity markets extended their bearish trajectory in the last session, with the Nasdaq Composite leading the decline by falling 445.80 points, or nearly 2%. The sell-off was accompanied by elevated trading volume, signaling a potential distribution phase and reflecting deteriorating risk appetite among investors.

The negative sentiment was fueled by a confluence of factors. Mounting concerns over stretched valuations in the AI sector placed stocks like Nvidia and Tesla at the epicenter of the sell-off. This was compounded by a batch of mixed corporate earnings reports, which failed to provide consistent positive catalysts for the market.

Macroeconomic anxieties intensified following recent labor market data. With the official Nonfarm Payrolls report expected to miss forecasts for a second consecutive month, and the ADP Employment Change showing a three-month trend of moderation, evidence is mounting that business expansion is cooling. This has heightened fears of an impending economic slowdown.

Further dampening sentiment, Federal Reserve Chair Jerome Powell struck a hawkish tone, pushing back against market certainty for a December rate cut. He emphasized that any policy easing remains strictly data-dependent. This rhetoric has caused a notable repricing in rate expectations, with the CME FedWatch Tool indicating the probability of a December cut has receded to 68.7%, down from 84.8% a month ago, reinforcing a higher-for-longer rates narrative.

Technical Analysis

Dow Jones, H4:

The Dow Jones Industrial Average continues to trade firmly within its prevailing downtrend channel, with the most recent rejection at the channel’s upper boundary reinforcing the index’s negative near-term bias. This price action confirms that bearish momentum remains intact, as sellers continue to dominate rallies.

However, the index is now approaching a critical technical juncture at the 46,800 level. This zone represents a significant confluence of support, combining a key liquidity area with the primary long-term uptrend support line that has underpinned the broader bull market. A successful defense of this level could potentially catalyze a strong technical rebound, offering bulls a foundation for recovery.

Momentum indicators continue to reflect bearish dominance. The Relative Strength Index (RSI) is trending lower toward oversold territory, while the Moving Average Convergence Divergence (MACD) remains entrenched below its zero line. This configuration suggests selling pressure persists, though the RSI’s approach to oversold levels may indicate increasing potential for a technical bounce. The 46,800 level now serves as a critical pivot—a breach below would signal breakdown of the long-term uptrend, while a firm hold could trigger a meaningful rebound toward channel resistance.

Resistance level: 47,640.00, 48,225.00

Support level:46,600.00, 46,180.00

VIX, H4

The CBOE Volatility Index (VIX) has demonstrated a robust bullish reversal, rallying more than 18% from its recent low of 16.45. This sharp upswing signals a significant shift in market sentiment and a potential resumption of the fear gauge’s uptrend.

Despite a temporary dip below its short-term uptrend channel, the index found firm support above the critical 61.8% Fibonacci retracement level at 17.82, subsequently recovering to challenge its recent highs. This price action suggests the underlying bullish structure remains intact.

The technical picture now hinges on the VIX’s ability to conquer the 19.50 resistance level. A decisive break above this barrier would confirm a bullish breakout and potentially open the path for further advancement toward the 20.00+ psychological zone.

Momentum indicators support the constructive outlook. The Relative Strength Index (RSI) is trending higher, reflecting strengthening buying pressure, while the Moving Average Convergence Divergence (MACD) is poised for a bullish golden cross above its zero line. This configuration indicates that bullish momentum is indeed gathering strength, positioning the VIX for a potential test of the 19.50 threshold in subsequent sessions.

Resistance level: 47,640.00, 48,225.00

Support level:46,600.00, 46,180.00