Markets ended the week effectively unchanged after a rally at the start of the week, fueled by the end of the government shutdown, gave way to a selloff on renewed concerns about elevated valuations, particularly for AI-related stocks.
After 44 days, the government shutdown officially ended after a handful of Democratic senators voted with Republicans on a bill to reopen the government. The agreement was quickly approved by the House of Representatives and signed by the president. The bill funds most of the government through January 30, potentially setting the stage for another shutdown in early 2026.
Stocks turned more volatile as the week progressed with investors seemingly becoming more concerned about inflated valuations, particularly for a number of AI related companies. While the elevated valuations are not a new phenomena, markets often seem willing to overlook things, until they decide not to. That seemed to be the case this week as the tech-heavy NASDAQ fell 2.3% on Thursday, its largest daily decline since early October, and second largest since April. The selloff seemed to be the result of investors locking in profits, comments by Fed officials, and the release of 13F reports, mandatory filings by large institutional investors detailing their holdings, which showed multiple large institutions sold AI-related stocks during the third quarter. In addition, investment firm Softbank announced on Tuesday that it sold its entire stake in Nvidia in October, valued at ~$5.8B.
During the week, multiple Fed speakers shared their views on the possibility of a December rate cut highlighting a range of opinions on the topic. Markets noted that a growing number appear to be skeptical about another cut in December, including Boston Fed President Susan Collins who said, “it will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment” one which has been made all the more challenging due to the recent dearth of government data. Markets ended the week pricing in just a 44% chance of a December rate cut, down from 67% the week before, and 94% prior to the start of the Fed’s October meeting.
