U.S. equities fell on Thursday as investors digested fresh signs of labor market resilience and a sharp pullback in artificial intelligence (AI) heavyweights, led by Nvidia. The Dow Jones Industrial Average lost more than 300 points, while the S&P 500 and Nasdaq Composite also retreated, reversing part of this week’s gains. The sell-off came as stronger-than-expected jobless claims data reignited fears that interest rates could stay higher for longer, while the AI trade — a major driver of 2024’s market rally — showed its first signs of fatigue in weeks.

Nvidia Selloff Leads AI and Tech Decline

Shares of Nvidia (NASDAQ: NVDA) fell nearly 4%, extending a recent pullback that has shaved billions off its market capitalization. The chipmaker’s drop rippled across the semiconductor sector, dragging peers such as Advanced Micro Devices (AMD) and Broadcom lower. The PHLX Semiconductor Index dropped over 2% as investors took profits following months of rapid gains fueled by AI demand optimism.

Analysts noted that while Nvidia remains a cornerstone of the AI investment narrative, its valuation — which at one point surpassed $3 trillion — has left the stock vulnerable to rotation and macro-driven selloffs. “We’re seeing a healthy consolidation in AI leaders,” said one Wall Street strategist. “The market had priced in near-perfect growth assumptions, so even modest shifts in macro expectations are amplifying volatility.”

The decline underscores a broader recalibration in tech sentiment after a relentless rally that saw the Nasdaq rise more than 15% year-to-date. Traders said short-term weakness in megacap tech names could intensify if Friday’s nonfarm payrolls report shows continued strength in hiring, potentially delaying rate cuts.

Labor Market Data Reignites Rate Uncertainty

Thursday’s U.S. weekly jobless claims came in below expectations at 221,000, suggesting the labor market remains resilient despite recent signs of cooling. The data tempered hopes that the Federal Reserve would deliver multiple rate cuts this year, pushing Treasury yields slightly higher. The 10-year U.S. Treasury yield climbed to 4.62%, while the U.S. dollar index (DXY) strengthened modestly.

Market pricing for rate cuts in 2025 has become increasingly uncertain. According to CME FedWatch data, traders now see just one rate cut by March, down from two projected earlier this week. The shifting outlook has weighed on equity valuations, particularly in rate-sensitive sectors such as technology and real estate. In Israel, the Tel Aviv 35 Index mirrored the global mood, dipping 0.4% as investors awaited U.S. data for direction.

Sector Performance and Investor Positioning

All 11 S&P 500 sectors ended the session lower, led by declines in information technology, communication services, and consumer discretionary stocks. Defensive names such as utilities and health care fared relatively better but failed to offset broader weakness. Energy shares also slipped as WTI crude oil prices fell below $77 per barrel, reflecting concerns about slowing global demand.

Despite the market weakness, trading volumes remained moderate, indicating investors are cautious rather than panicked. Analysts at JPMorgan said the market’s pullback “looks like a pause rather than a reversal,” noting that earnings growth expectations for 2025 remain intact. However, volatility could rise in the near term as investors weigh macroeconomic data against corporate outlooks in sectors tied to AI, semiconductors, and consumer spending.

As markets head into Friday’s key jobs report, sentiment remains fragile. A stronger-than-expected print could further dampen hopes for early rate cuts, while a weaker report might restore optimism for a soft landing. Either way, investors are bracing for continued swings as macro data, monetary policy expectations, and the AI trade’s next leg collide in the weeks ahead.