US stocks reverse gains as Fed rate cut hopes dim

US stocks tumbled on Thursday on declining expectations that the Federal Reserve will cut interest rates in December, reversing a marketwide rally sparked earlier in the day by Nvidia's bumper earnings report.

The Dow Jones Industrial Average lost 380 points, or 0.80 per cent, on the day after being up more than 700 points earlier. The Nasdaq Composite ended the day 2.1 per cent lower for an intraday reversal of more than 3.5 per cent. The S&P 500 fell 1.5 per cent.

Fuelling the morning Wall Street rally was Nvidia's third-quarter earnings, released on Wednesday, which beat analyst expectations. The company also posted stronger-than-expected revenue for the fourth quarter as chief executive Jensen Huang promoted sales of the company's powerful Blackwell chips.

But Nvidia joined other tech stocks in paring gains after a government report cast further doubt on the prospect of the Fed cutting interest rates next month.

Nvidia also turned negative on the day after being up more than 5 per cent. The chip maker closed 3.1 per cent lower at $180.64 a share. Other tech stocks including Amazon, AMD, Apple, Meta, Microsoft and Oracle all closed in the red.

US jobs data

Employment data released by the Bureau of Labour Statistics showed that employers added 119,000 jobs in September. While that was larger than expected, the unemployment rate also ticked up to 4.4 per cent from 4.3 per cent. September's job figures were delayed because of an extended government shutdown.

“A tick higher in the labour force participation rate suggests some of this unemployment rate increase was driven by better supply growth, but nonetheless it was the highest unemployment rate reading since October 2021 and points to the FOMC struggling to maintain the 'maximum employment' part of its mandate,” Wells Fargo economists wrote, referring to the Fed's rate-setting committee.

Nancy Vanden Houten, lead economist at Oxford Economics, said Thursday's report offered some “reassurance” that the US jobs market was not crumbling before the government shutdown, even if the latest report might be retrospective.

“There is nothing in the data to warrant a change to our forecast for the Federal Reserve to leave rates unchanged at the December meeting,” she wrote.

Unlike other central banks, the Fed has a dual mandate of tackling inflation and promoting full employment. But Fed officials appear increasingly divided over which side requires greater attention while inflation remains above their 2 per cent target and with the labour market stalling.

Minutes from the Fed's October meeting released on Wednesday further underscored the discomfort Fed officials face.

“Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year,” the minutes showed.

Traders continue to anticipate the Fed will hold rates steady next month, although there was some pullback in the possibility to reduce rates by 25 basis points, according to CME Group data.