Stocks Drop as Investors Brace for Fed Uncertainty Ahead of Key Data

Heavy selling returned to Wall Street, cutting short a brief rebound that followed the US government’s reopening. A chorus of hawkish remarks from Federal Reserve officials delivered just before a wave of delayed economic reports prompted traders to offload riskier assets, dragging everything from major tech names to cryptocurrencies lower.

‍

With the shutdown resolution already priced in, investors shifted their attention back to stretched valuations, sparking a pullback in the market’s most richly priced tech giants. Beneath the surface, some analysts noted a clear rotation toward defensive sectors. It marked the third time in two weeks that the S&P 500 slid more than 1%. Bitcoin also broke below the $100,000 mark and has now fallen more than 20% since early October.

‍

President Donald Trump formally signed the legislation ending the longest government shutdown in US history, but operations across federal agencies may take time to fully resume. The October jobs report will exclude the unemployment rate due to the disruption, according to White House economic adviser Kevin Hassett. Meanwhile, Fed officials continued to stress caution about future rate cuts, pushing market expectations for a December reduction back below 50%.

‍

St. Louis Fed President Alberto Musalem urged a slow approach to policy decisions given inflation remains above target. Cleveland Fed President Beth Hammack echoed the view, saying monetary policy should stay “somewhat restrictive.”

‍

Minneapolis Fed President Neel Kashkari who opposed the last cut said he remains undecided on December. And Fed Chair Jerome Powell recently warned that a cut is “not a foregone conclusion,” emphasizing that any move depends on incoming data. For some traders, the lack of critical economic information during the shutdown strengthens the argument for holding steady.

‍

“It’s an expensive market, and lofty valuations generally need lower rates to stay justified,” said Matt Maley of Miller Tabak + Co. “With so much data hitting all at once, that uncertainty is rattling investors.”

‍

The S&P 500 dropped 1.7%, while the Nasdaq 100 shed 2.1%. Both large-cap and small-cap segments fell nearly 3%. The VIX Wall Street’s fear gauge reached 20. Ten-year Treasury yields climbed to 4.12%, and the dollar weakened.

‍

Because data releases are only trickling back, traders are navigating a continued information gap. That leaves sentiment and positioning with an outsized influence on short-term market moves, said Fawad Razaqzada of Forex.com. “The question is whether the market’s latest bout of enthusiasm has finally run out of steam,” he noted. After a powerful technology-led rally since April, many of the sector’s key names now look stretched, especially with few catalysts on the calendar.

‍

Razaqzada added that the past few sessions have revealed a notable shift away from high-growth tech and back into defensive and value-oriented sectors. “Whether this signals fading risk appetite or just a healthy rotation is unclear,” he said. “But insider selling across tech has picked up and that rarely sends a bullish message.”

‍

Michael O’Rourke of JonesTrading described the moment as a natural opportunity for profit-taking. Chris Grisanti of MAI Capital Management agreed, calling the rotation “healthy but painful.” He’s not buying the dip yet, but he has a shortlist ready if markets go lower.

‍

Paul Ticu of Calamos Investments said equities may finally be delivering the pullback investors expected in October before the shutdown delayed it. He would use market weakness to build long-term positions.

‍

David Miller of Catalyst Funds added that investors are taking profits in megacap AI stocks and reallocating into more reasonably priced areas like financials, industrials, energy, and healthcare. Higher-quality cyclicals are also gaining traction as investors prepare for a slower but steadier economic backdrop in which earnings reliability matters more than hyper-growth narratives. “A rotation out of tech is probably the healthiest trend we’ve seen all year,” Miller said. “A broader rally is ultimately a stronger rally.”

‍

The recent run in growth and AI megacaps has carried the market for months, and broadening participation is essential for durability, said Mark Malek of Siebert Financial. “The real question is whether we’re seeing the start of a longer-term rotation or just typical market churn.”

‍

Carol Schleif of BMO Private Wealth pushed back on bubble concerns, noting that AI demand remains oversubscribed and that spending appears orderly. While some investors are uneasy with rising debt-financed investment, she said hyperscalers still have under-levered balance sheets and multiple funding avenues.

‍

Tech’s slide has placed even more weight on Nvidia Corp.’s earnings next week. A strong outlook from CEO Jensen Huang could help rescue year-end momentum, said strategist Louis Navellier.

‍

Schleif expects markets to edge higher though with more volatility as Washington returns to normal. But uncertainty remains, particularly given the missing inflation and jobs reports. She still anticipates a Fed rate cut in December, while market odds have cooled considerably from near-certainty just a few weeks ago.

‍

Strategas economist Don Rissmiller said the lack of official government data has made it harder to gauge the depth of recent economic softness. “The shutdown may be over, but data disruptions will linger for months,” he said, adding that this raises the risk of further labor market weakness heading into year-end.

‍

Fed officials remain divided over the best path forward, with inflation still elevated and job growth looking fragile. Krishna Guha of Evercore said delaying a rate cut to gather more data likely creates more problems than it solves, arguing instead for a “hawkish cut.”

‍

More clarity on the real economy could strengthen the case for a quarter-point move if upcoming data points to softer labor conditions and subdued inflation, according to BMO Capital Markets strategists Ian Lyngen, Vail Hartman, and Delaney Choi. But even as data resumes, they warned that investors may treat the numbers with skepticism due to collection delays and reporting gaps.

‍

Thomas Ryan of Capital Economics noted that some missed October surveys will take weeks to compile and verify, while certain field-collected metrics like CPI may not be recoverable at all. Commonwealth Financial Network’s Chris Fasciano added that November data will also be constrained by a shortened collection window and the Thanksgiving holiday.

‍

Given the uncertainty, investors should remain agile, said Seema Shah of Principal Asset Management. “When information is scarce and market currents shift quickly, flexibility matters more than unshakable conviction.”

‍