Dow Jones falls 1,100 points from highs in a dramatic reversal — Key factors explained

US markets staged a dramatic reversal from the post-Nvidia-result-rally to end with steep cuts on Thursday as a combination of resurfacing of the AI valuation concerns, dwindling Fed rate cut hopes and statements from some Wall Street veterans dampened the positive sentiments.

The Dow Jones fell over 1,100 points from the highs of the day to end nearly 400 points lower. The S&P 500 fell 232 points from the day's high, while the Nasdaq also corrected over 1,000 points from the highs of the session to end with losses of over 2%.

Losses on the Nasdaq were led by Nvidia, whose shares fell 8% from the day's high to end with losses of over 3%. While analysts on the street projected targets of as high as $350, Deutsche Bank said that the stock is "fairly valued" and leaves little room for disappointment.

A delayed September non-farm payrolls report showed the US economy added 1.19 lakh jobs, well above the street expectations that ranged between 50,000 to 55,000. This is the only jobs report that the Fed gets access to before its December 10 policy decision as the Bureau of Labor Statistics announced that the jobs report for October and November will be released together on December 16, after the policy announcement.

With this jobs report, the prospects of the FOMC cutting rates in December dwindled to 39%, according to the CME Fedwatch tool.

Dampening market sentiment further were statements from Wall Street veteran Ray Dalio, the founder of Bridgewater Associates. Dalio said in remarks that we are "indeed in bubble territory" but the catalysts to burst the bubble are missing. On the flip side, he said that just because there happens to be a bubble doesn't mean that investors should sell. The market veteran went on to add that monetary policy is an unlikely catalyst to burst the AI bubble, but higher wealth taxes could do so.

The only stock that stood tall amidst this steep reversal was Walmart. The world's largest retailer beat street expectations in the third quarter, raised full-year sales and EPS guidance for the second time in a row, and as a result, the stock ended with gains of over 6%.

With indices ending at a two-month low, today's session assumes significance as it would mark the expiry of S&P 500 contracts worth $1.7 trillion and notional single-stock options worth over $700 billion.