Wall Street Poised to Snap Weekly Winning Streak as AI Momentum Cools

U.S. stocks extended their decline on Friday, with major indexes on track to break a multi-week winning streak as investors grew increasingly cautious about lofty tech valuations.

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The S&P 500 dropped 0.8% as of midmorning in New York, while the Nasdaq 100 dominated by technology shares slipped 1.2%, putting both benchmarks on course to end three consecutive weeks of gains. Meanwhile, the Cboe Volatility Index, Wall Street’s “fear gauge,” hovered near 21, reflecting renewed investor unease.

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The latest nonfarm payrolls report was delayed due to the ongoing government shutdown, but private data earlier in the week suggested a cooling labor market.

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“This softening trend supports the case for the Fed to move forward with rate cuts in December and potentially continue into early 2026,” said Glen Smith, chief investment officer at GDS Wealth Management. “The job market is losing some momentum, but not enough to raise recession fears in the near term.”

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Fresh data from Challenger, Gray & Christmas Inc. added to that narrative, showing that companies announced more job cuts in October than in any other October over the past 20 years. Much of this reduction stems from the rapid adoption of artificial intelligence and a renewed push toward cost efficiency.

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However, some strategists argue that the headlines may exaggerate the weakness. Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute, believes recent layoff announcements “likely overstate” the fragility of the labor market.

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“Overall, the data we do have aligns with our positive outlook for 2026, following a brief slowdown early next year,” she said. “We expect several policy tailwinds like tax cuts, monetary easing, and deregulation to help reenergize economic growth as 2025 progresses.”

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Still, the shutdown itself will likely weigh on near-term U.S. growth, according to President Donald Trump’s economic advisor Kevin Hassett. “We were projecting around 3% GDP growth for the fourth quarter,” Hassett said in an interview with Fox Business. “Now, we’re looking at roughly half that pace.”

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Technology shares key drivers of this year’s rally faced renewed selling pressure throughout the week, especially among companies that had benefited most from the artificial intelligence boom. Disappointing results from Palantir Technologies Inc., Super Micro Computer Inc., and Qualcomm Inc. added to the negative tone.

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What started as exuberance around AI innovation has shifted into skepticism. Mega-cap tech firms that fueled the rally are now under scrutiny, with investors questioning whether the massive capital required to fund AI development particularly by OpenAI can continue flowing at the same pace.

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Hedge fund manager Michael Burry amplified those concerns earlier in the week by revealing short positions against Palantir and Nvidia Corp., sparking fears that valuations across the sector may have become unsustainable. Still, Smith of GDS Wealth Management views the pullback differently.

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“Some of these major tech names are now trading at attractive levels,” he said. “For investors who missed the recent rally, this could be a good entry point.”

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Tesla Inc. also slipped after shareholders approved an unprecedented $1 trillion compensation package for CEO Elon Musk the largest corporate payout in history.

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“People are reacting to the sheer size of the package,” said Kyle Rodda, senior analyst at Capital.com. “But it’s worth remembering that Musk only gets the payout if he meets some very ambitious performance targets, which is far from guaranteed.”

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Among individual names, Block Inc. dropped sharply after the fintech company reported weaker-than-expected adjusted earnings and net revenue. CNH Industrial NV also fell after lowering its guidance, citing pressure from the expansion of U.S. steel and aluminum tariffs in August.

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Sweetgreen Inc. plunged after the fast-casual restaurant chain reduced its revenue outlook for the year and was downgraded by analysts at William Blair. In contrast, Monster Beverage Corp. provided a bright spot, climbing after the energy drink maker posted third-quarter results that beat expectations.

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Overall, investors are grappling with a mix of cooling labor trends, shaky earnings, and heightened valuation anxiety factors that have temporarily dampened Wall Street’s recent optimism. While some see opportunity in the pullback, others warn that stretched tech valuations and lingering uncertainty about the economy could make the coming weeks volatile.

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For now, markets are adjusting to a new reality one where enthusiasm for artificial intelligence and resilient growth narratives is tempered by a growing awareness that even the hottest sectors can’t defy gravity forever.

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