By Kavita Iyer 
New York, August 20: A wave of doubt swept across Wall Street on Wednesday, as the Nasdaq Composite slumped between 1.6% and 1.7%, registering its sharpest single-day decline in nearly a month. The downturn, sparked by unease around AI investment returns and looming signals from the Federal Reserve, sent tremors through the technology-heavy index and wiped billions off the books of top-tier chipmakers and software firms.
AI Enthusiasm Hits A Wall As Corporates Fail To Deliver
What appeared just months ago to be an unstoppable narrative around generative AI is now showing its first major signs of market fatigue. A recent MIT study, cited by the Financial Times, found that 95% of surveyed companies had yet to see tangible returns on their AI investments. That figure, once brushed off as growing pains, has taken on new weight after OpenAI CEO Sam Altman publicly cautioned that current market euphoria may be running ahead of reality.
As reported by the Financial Times, the sell-off gathered pace throughout the session, fueled by tech-heavy portfolios unwinding positions built on AI-fueled momentum. This shift has led to renewed scrutiny over what, if anything, lies beneath the inflated valuations of AI-adjacent firms.
Chipmakers Take It On The Chin
Tech stocks bore the brunt of the hit, with semiconductor players leading the plunge. Nvidia, often seen as the torchbearer of the AI hardware boom, dropped 3.7%. AMD, Intel, and Micron also tumbled, with some shares falling as much as 6%, according to Reuters.
The rout was not limited to hardware. Palantir Technologies, a company heavily marketed as an AI analytics platform, saw its stock plummet 9.3%, making it one of the day’s worst performers. The slump came despite no direct earnings update, suggesting a broader loss of faith in AI’s short-term payoff.
Investors Eye Fed For Clues On Rate Trajectory
While AI sentiment provided the spark, macroeconomic anxiety poured fuel on the fire. Traders are positioning defensively ahead of two critical signals from the Federal Reserve: the release of minutes from its July meeting, and Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium.
As per AP News, investors are bracing for the possibility that the Fed may stick to a “higher for longer” interest rate stance, especially if inflation readings remain sticky. Though rate hikes have been on pause recently, any indication of future tightening could further squeeze tech valuations, which are sensitive to interest rate expectations due to their growth-heavy profiles.
S&P Slips, Dow Fares Better On Retail Lift
The S&P 500 wasn’t spared, sliding between 0.8% and 1% to mark its worst day since early August, according to the Financial Times. However, the Dow Jones Industrial Average displayed relative resilience. While some reports indicated a mild decline, others noted a modest uptick, bolstered by strong showings in the retail sector.
Target Tanks, Lowe’s Lifts, TJX Soars
Retail earnings painted a mixed picture. Target shares plunged between 7% and 11%, reacting sharply to the unexpected announcement of its CEO’s planned exit amid sluggish sales. As covered by Investors.com, the leadership shakeup comes at a vulnerable time for the company, which has struggled to regain consumer confidence post-pandemic.
In contrast, Lowe’s beat earnings expectations and surprised markets with an $8.8 billion acquisition details of which remain under wraps. The home improvement giant also raised its full-year outlook, sparking a rally in its shares.
TJX Companies, owner of T.J. Maxx and Marshalls, also delivered a stellar report. The discount retailer climbed as much as 4.4%, buoyed by higher traffic and strong demand for off-price merchandise. As reported by AP News, TJX even touched an all-time stock price high during the session.
Still, not all was rosy in consumer-facing sectors. La-Z-Boy and Estee Lauder both declined, with weak forecasts and sluggish demand dimming investor sentiment.
A Fragile Market, With One Eye On Jackson Hole
At the close, the sense across trading desks was one of caution rather than panic. The Nasdaq’s drop was steep, yes but not chaotic. Rather, it reflected a sobering moment for a market that has leaned heavily on narratives: AI, recovery, rate cuts.
What makes this moment particularly delicate is the confluence of three narratives under pressure at once. If AI hype continues to falter, if the Fed signals more tightening, and if earnings remain choppy, the next few weeks could challenge the Nasdaq’s year-to-date gains, which are still positive but increasingly vulnerable.
That said, some analysts are still optimistic about a recovery. As always, markets move in cycles. But as Wednesday showed, the mood is shifting. The appetite for risk is shrinking. And in a market built on belief, that can change everything.
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Former financial consultant turned journalist, reporting on markets, industry trends, and economic policy.
- Kavita Iyerhttps://hindustanherald.in/author/kavita/
- Kavita Iyerhttps://hindustanherald.in/author/kavita/
- Kavita Iyerhttps://hindustanherald.in/author/kavita/
- Kavita Iyerhttps://hindustanherald.in/author/kavita/
