The US stock market, which had been on a record-breaking rally, witnessed a sharp and sudden correction triggered by a combination of heavy profit-taking in AI-linked stocks, uncertainty over upcoming economic data, and fading hopes of an immediate Federal Reserve rate cut. The S&P 500 fell 1.66 per cent, the tech-heavy Nasdaq plunged 2.29 per cent, and the Dow Jones Industrial Average dropped 1.65 per cent, wiping out a significant portion of last week’s gains.
While profit-booking in AI-driven companies was the immediate catalyst, analysts say the correction was not driven by a single factor. Over the past several months, major tech firms have invested aggressively in massive artificial intelligence projects, driving valuations to historic highs. As stock prices skyrocketed, concerns of overvaluation intensified. Investors began locking in profits, worried that stretched valuations could trigger an even steeper decline. This large-scale selling in high-growth tech stocks dragged the broader indices down.
Market braces for backlog of key US economic data
Another major source of concern came from Washington. Although the government shutdown has ended, the Trump administration had paused the release of several important economic reports, including unemployment figures, during the deadlock. With the shutdown lifted, all these delayed numbers are set to be released at once, stoking fears that they may reveal deeper weaknesses in the US economy.
The White House clarified that due to the shutdown, no accurate job counts were conducted, meaning the upcoming report may lack crucial information on employment gains or losses. Despite the explanation, uncertainty surrounding the real economic picture added significant selling pressure across sectors. Markets worry that the backlog of reports, whatever their accuracy, may reflect the underlying strain the US economy has been facing. Investor sentiment was further dampened after expectations of an imminent rate cut were dashed. As recently as yesterday, markets were confident that the Federal Reserve would reduce the benchmark interest rate by at least 0.25 percentage points on December 10. However, remarks from at least five Federal Reserve governors indicated that the probability of a rate cut now stands at a balanced 50:50.
This shift strengthened the US dollar and pushed Treasury yields higher, making equities less attractive. The stronger dollar also affected commodities, adding to market volatility. Gold, which had surged above $4,200 per ounce just a day earlier, also saw price corrections. By morning, the metal was trading at around $4,191 per ounce after dropping to an intraday low of $4,146.
Depth of the collapse
The scale of the correction was sharp. The Dow Jones Industrial Average fell 800 points, from its all-time peak of 48,200 to 47,400. The Nasdaq Composite lost 500 points, while the S&P 500 dropped 114 points. The Dow erased nearly 60% of the gains it had built over the past four sessions in a single day. Global markets mirrored the US downturn. Japan’s Nikkei declined 1.85 per cent, South Korea’s KOSPI fell 2.29 per cent, Australia’s ASX200 slipped 1.58 per cent, Hong Kong’s Hang Seng dropped 1.01 per cent, and China’s Shanghai Composite edged down 0.14 per cent. In Europe, the FTSE slid 1.05% and Germany’s DAX fell 1.39 per cent, with the FTSE also pressured by disappointing UK GDP growth numbers.
Impact on India: Stable Fundamentals, but market watches global cues and Bihar verdict
India, with its strong economic fundamentals and steady policy framework, is also expected to feel some ripple effects from the global downturn. The Gift Nifty slid 90 points this morning, suggesting a cautious opening for domestic indices. The Sensex and Nifty, which saw volatility yesterday, may face early selling pressure today as global cues weigh on sentiment. Another domestic factor adding to market watchfulness is the Bihar Assembly election results to be declared today. While India’s long-term economic trajectory remains robust, market participants often react sensitively to major political events. A setback for the ruling alliance in any state election can trigger temporary nervousness, as it may be perceived as an early indicator of shifting political currents.
Several major Indian companies are scheduled to announce their September-quarter results today, including Tata Motors (Passenger), Oil India, Glenmark, Engineers India, Inox Wind, Max Healthcare, Rashtriya Chemicals and Fertilisers, Sun TV, and Ulkarsh Small Finance Bank.
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