The Nasdaq closed its worst week since April as AI stocks tumbled, U.S. consumer sentiment hit new lows, and the federal government shutdown dragged on.
U.S. stocks ended a volatile week on a mixed note, with the Nasdaq Composite falling 0.21% to 23,004.54, capping its worst weekly decline since April. The S&P 500 inched up 0.13% to 6,728.80, while the Dow Jones Industrial Average added 0.16% to close at 46,987.10.
Despite modest daily moves, the Nasdaq lost about 3% for the week, marking its steepest five-day drop in over six months. At one point during Friday’s session, the Nasdaq plunged more than 2.1%, while the S&P 500 and Dow were down 1.3% and roughly 400 points, respectively.
Investors cited two major drivers behind the weakness: the sharp pullback in AI-related stocks and growing evidence of a slowing U.S. economy.
After months of relentless gains, the artificial intelligence (AI) rally that fueled Wall Street’s momentum in 2024 is finally showing signs of fatigue. Some of the biggest names in tech — Nvidia, AMD, Oracle, Tesla, and Microsoft — led the declines.
Oracle slid nearly 2% Friday, ending the week down about 9%.
Advanced Micro Devices (AMD) also lost around 9%, while Broadcom fell more than 5%.
Analysts say the pullback is a healthy correction after months of overexuberance.
Leah Bennett, Chief Investment Strategist at Concurrent Asset Management, explained:
“We’re seeing a broad revaluation across the AI sector. The rally isn’t over — but after such a sharp rise, the market needs time to recalibrate.”
Bennett added that AI spending remains strong, and this period of volatility could offer an attractive entry point for long-term investors.
Beyond tech’s decline, recent economic indicators have deepened investors’ unease.
A survey from the University of Michigan on Friday showed that U.S. consumer sentiment fell to 50.3, approaching its lowest levels in modern history — comparable to pandemic-era lows.
Meanwhile, data from Challenger, Gray & Christmas revealed that layoff announcements in October hit their highest level in 22 years, with technology and retail sectors among the hardest hit. This has reignited fears that the labor market may be losing momentum.
Adding to the uncertainty, the nonfarm payrolls report was not released for the second consecutive month due to the ongoing federal government shutdown, leaving investors “flying blind” as they gauge the Federal Reserve’s next policy moves.
The prolonged U.S. government shutdown — now the longest in American history — continues to disrupt the economy. Hundreds of thousands of federal employees remain furloughed or unpaid, and key data releases have been delayed.
In a further blow, Transportation Secretary Sean Duffy announced a 10% reduction in flights across 40 major U.S. airports, affecting 3,500–4,000 flights per day. By Friday morning alone, over 700 flights had already been canceled due to a shortage of air traffic controllers.
Senate Minority Leader Chuck Schumer proposed a temporary funding extension to reopen government operations in exchange for a one-year extension of enhanced Affordable Care Act tax credits. However, partisan gridlock in Washington has made progress slow.
While the Nasdaq suffered heavy losses, the S&P 500 and Dow Jones managed small gains, signaling a rotation away from growth stocks toward value and defensive plays.
Sectors like energy, healthcare, and financials showed relative strength as investors sought stability amid uncertainty.
Still, all three major indexes ended the week lower overall — a clear sign that caution continues to dominate market sentiment.
Analysts say the Nasdaq’s pullback may represent a healthy market correction rather than a structural breakdown. After months of intense speculation in AI stocks, a cooling-off period could restore balance and curb excessive valuations.
Many strategists remain optimistic about the long-term growth potential of AI:
The sector’s fundamental drivers remain intact.
The current sell-off could pave the way for more sustainable, value-driven investments.
However, they caution that persistent weakness in consumer confidence and a prolonged government shutdown could raise the risk of a U.S. recession in early 2026.
Political developments in Washington – whether lawmakers can reach a deal to end the shutdown.
Federal Reserve signals – weak data could pressure the Fed to maintain its current interest rate pause.
AI stock performance – investors will be watching if the sector stabilizes or extends its decline.
Rotation trends – continued movement into value and defensive stocks could define the next phase of the market.
This past week has been a reality check for Wall Street. The combination of a cooling AI frenzy, deteriorating economic sentiment, and a paralyzed federal government pushed the Nasdaq to its worst weekly loss since April.
Yet, amid the red numbers, there’s a silver lining: the market is self-correcting. The sell-off could help deflate speculative excesses in AI and force investors to reassess what “value” really means.
For long-term investors, this could be a pivotal moment to rebalance portfolios and position for the next growth cycle.
1. Why did the Nasdaq fall more than the other indexes?
Because the Nasdaq is heavily weighted toward tech and AI stocks, which are now facing valuation pressure after months of rapid gains. The S&P 500 and Dow have more exposure to value and defensive sectors.
2. Is this the end of the AI boom?
Not necessarily. Most analysts view this as a short-term correction. The AI investment theme remains strong but may enter a slower, more sustainable growth phase.
3. How does the U.S. government shutdown affect the market?
The shutdown delays economic data, disrupts air travel, and curtails government spending — all of which can slow overall economic activity and dampen investor confidence.
4. What should investors do now?
Stay cautious but not fearful. Focus on companies with strong fundamentals, steady cash flow, and resilient business models. Avoid speculative trades and consider defensive diversification.
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