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US market rally fades despite strong Nvidia, Walmart results as AI bubble fears persist
A wave of positive US corporate earnings-including record sales at AI chipmaker Nvidia and retail giant Walmart-failed to reverse this week's market downturn, as investors remained wary of an overinflated AI sector and lingering inflation concerns. Major US indexes extended losses on Thursday, with the S&P 500 dropping 1.5%, the Dow Jones shedding 0.8%, and the Nasdaq declining over 2%. Asian markets followed suit on Friday, with Japan's Nikkei 225 down 2.4% and South Korea's Kospi falling 3.8%.
Strong earnings fail to reassure investors
Nvidia's shares, which had surged in early trading on robust demand for its AI chips, reversed course and closed down more than 3%. The company's CEO, Jensen Huang, dismissed concerns about an AI bubble during an analyst call, stating, "From our vantage point, we see something very different." Yet skepticism persisted, with analysts noting that even blockbuster results from the chipmaker-often viewed as a barometer for AI growth-could not sustain market optimism.
Walmart's better-than-expected sales and a surprise uptick in September hiring, which saw 119,000 jobs added-double analyst forecasts-also did little to ease broader anxieties. The mixed jobs report, which included a rise in the unemployment rate from 4.3% to 4.4%, left investors questioning the Federal Reserve's next move on interest rates, said Eric Teal, chief investment officer at Comerica Bank.
AI concentration and inflation fears drive volatility
Investors are increasingly uneasy about the outsized influence of the so-called "Magnificent Seven" tech stocks-Alphabet, Apple, Microsoft, and others-which now account for roughly 33% of the S&P 500's weight. "When momentum turns downward, as we've seen over the past week, people get nervous," said Colleen McHugh, an investment consultant at Wealthify, in an interview with the BBC. The Nasdaq, heavily weighted toward tech, has endured its worst November since March.
Bitcoin also slid below $90,000 on Thursday, hitting its lowest level since April, as cryptocurrency markets mirrored the broader risk-off sentiment. Analysts attributed the decline in part to spillover concerns about AI valuations, which Alphabet CEO Sundar Pichai recently described as showing signs of "irrationality."
Global ripple effects
Asian markets amplified the sell-off on Friday. Japan's Nikkei 225 closed 2.4% lower, with SoftBank plunging nearly 11%. South Korea's Kospi dropped 3.8%, dragged down by chipmakers SK Hynix (down 9%) and Samsung (down 5.8%). Hong Kong's Hang Seng lost about 2%, reflecting the regional unease over tech sector valuations and US monetary policy.
Analysts debate: Correction or deeper downturn?
Oxford Economics characterized the recent tech pullback as "a healthy correction rather than the start of something more threatening," though it acknowledged near-term risks from profit-taking. The firm maintained that "it's too early to call an end to the AI investment boom."
Yet uncertainty over inflation-compounded by delayed US government data due to the recent shutdown-has left investors "squaring up" their positions, according to James Stanley, a senior analyst at StoneX. "There's a lot of trepidation about where inflation is," he said. "There's a lot of opacity."
"When you have a market that's priced at perfection, you need all of the external catalysts behind it to keep driving it higher. A lot of those things, over the past three weeks, have been called into question."
Eric Teal, Chief Investment Officer, Comerica Bank
What's next: Fed policy and economic signals
Investors are now awaiting critical inflation data, rescheduled after the US government shutdown, which could shape the Federal Reserve's rate-cut timeline for 2026. "The path forward for interest rates is the biggest wildcard," said Stanley. Should inflation reignite, the Fed may hold rates higher for longer, further testing market resilience.
Analysts warn that without sustained AI adoption and lower borrowing costs, the rally that propelled stocks to record highs earlier this year could face deeper headwinds. "You've got to ask what's happening under the surface," Stanley added, pointing to the disconnect between strong corporate fundamentals and persistent market jitters.
