Stocks Retreat as AI Hype Meets Shutdown and Trade Fears

Sharp pullback in US markets: The Dow fell roughly 1.9% (≈878 points) on Oct. 10, while the Nasdaq and S&P 500 each dropped about 3.5% and 2.7%, their steepest declines since April ^[1] ^[2]. All three major indexes had just hit record highs the prior day.
Government shutdown clouds outlook: With the US federal government now in its second week of shutdown, much economic data is delayed. Investors pulled $4.5 billion from US stock funds last week amid profit-taking and uncertainty ^[3]. These outflows came even as bond and money-market funds saw record inflows (over $13 billion) as investors sought safety ^[4].
Tech giants’ sky-high valuations: The AI-driven rally has propelled chipmakers and tech majors to new highs. For example, Taiwan Semiconductor (TSMC) stock briefly traded above $300 in early October – about a 45% YTD jump (≈63% in one year) ^[5] ^[6]. Broadcom’s (AVGO) shares have nearly doubled (+90% YTD) thanks to a massive AI-chip order, giving it a ~$1.6 trillion market cap ^[7] ^[8]. AMD stock exploded on news of a huge AI chip deal with OpenAI – leaping ~34% on Oct. 6 alone ^[9] ^[10] – and trades ~75–80% higher this year ^[11]. (All of the “Magnificent Seven” tech names are still up double-digits YTD.)
Trade war jitters ease (for now): Late last week, President Trump threatened 100% tariffs on Chinese goods and blamed China’s rare-earth export curbs ^[12], sending US stocks sharply lower. By Monday he had “toned down” his rhetoric – tweeting “Don’t worry about China, it will all be fine!” ^[13] – which helped lift stock futures. Even so, the near-term path of markets now “depend[s] heavily on the path escalation takes,” as UBS strategists warn ^[14].
Gold and safe-havens shine: Amid geopolitical and economic angst, gold has hit new highs. It briefly topped $4,059 on Oct. 8 before easing back to ~$3,960 ^[15] ^[16]. Reuters notes that the Israel-Hamas ceasefire and profit-taking drove gold down ~2% on Oct. 9 ^[17], but analysts remain bullish. Bank of America now forecasts gold reaching $5,000/oz next year ^[18]. (Silver, platinum and other metals have also surged this month.)

Market Update: Rally Pauses, Tech Leads Losers

U.S. stocks gave back early gains as investors “paused to assess the optimism around AI and interest-rate cuts” ^[19]. On Friday Oct. 10, the Dow closed around 45,480 (down ~1.9%), the S&P 500 about 6,552 (–2.7%) and the Nasdaq roughly 22,204 (–3.6%) ^[20] ^[21]. Over the week, the S&P and Nasdaq had their worst weeks in months as global trade fears resurfaced. The declines were broad-based: 10 of 11 S&P sectors fell, with big drops in tech and consumer discretionary ^[22]. Volatility spiked – the VIX fear index jumped 32% to ~21.7, its highest since June ^[23].

Experts warn the selloff may reflect overly buoyant valuations. Jamie Dimon (JPMorgan CEO) cautioned investors could face a “significant” correction soon ^[24]. Gene Goldman (Cetera Investment Management) noted, “everything is priced for perfection” and rising uncertainty is adding to market jitters ^[25]. Still, others argue this is a pullback in a still-strong bull market – James St. Aubin (Ocean Park Asset Mgmt) said higher tariffs “could warrant a pullback but I don’t necessarily see it derailing the AI theme” ^[26].

The recent swoon coincided with Trump’s latest trade tirades. He revived threats of 100% tariffs on China (effective Nov. 1) and blamed Beijing for “hostile” export curbs on rare earths ^[27]. Stocks “about-faced” on the news; Nvidia, Tesla, Amazon and AMD all fell >2% in after-hours trading when Trump unleashed new tariffs ^[28]. U.S.-China tensions will remain in focus: China vowed to retaliate if tariffs proceed, though it held off new measures ahead of an anticipated Trump-Xi meeting ^[29] ^[30].

On Monday (Oct. 13), U.S. stock futures rallied on Trump’s conciliatory comments and easing trade angst. By early trading the Dow futures were up ~0.9% and Nasdaq futures +1.8% ^[31] ^[32]. “The path for markets in the near term depend heavily on the path escalation takes,” observes UBS Wealth Management ^[33]. Analysts note that AI-driven momentum and expectations of Fed rate cuts had buoyed stocks in recent months ^[34], so any thaw in trade war could relieve pressure.

Meanwhile the government shutdown now closes in on two weeks. Congress has yet to agree on spending, so key data releases (jobs, inflation, etc.) have been postponed ^[35] ^[36]. Fed officials are also in a tough spot: with the labor market “weaker” and inflation still stubborn ^[37] ^[38], markets are deeply priced for another 25 bp cut at the Fed’s Oct. 28 meeting ^[39]. Any hint from Fed Chair Powell’s Tuesday speech on inflation vs. employment could move markets significantly.

Tech Stocks and Deals – AI Mania Continues (with a Hiccup)

The frenzy in AI chips has driven huge gains but also extreme swings. TSMC – the Taiwanese foundry behind Nvidia and AMD chips – hit all-time highs this month. Its ADR traded above $300, capping a 45% rise year-to-date (~63% in 12 months) ^[40] ^[41]. TSMC reported blowout Q3 sales (~NT$990 billion) and reiterated ~30% growth guidance ^[42] ^[43]. However, geopolitical risks loom: Taiwan rebuffed a 50/50 US production split, and Chinese military drills near the island underscore tensions ^[44] ^[45]. At ~$280.66 on Oct. 10, the ADR was already about +6.4% off a recent pullback ^[46], and it traded near $294 pre-market on Oct. 13 ^[47] as sentiment remained strong.

Broadcom (AVGO) has been another standout. After a 10-for-1 split in late 2024, AVGO soared from ~$180 (Apr 2025) to ~$325 by early Oct. 2025 ^[48] ^[49]. Its rally was fueled by an announced ~$10 billion order for custom AI chips (widely linked to OpenAI) and record Q3 results (revenue +22% YoY) ^[50] ^[51]. Analysts are “overwhelmingly bullish” – ~90% rate it a Buy with an average 12‑month target of ~$377 (≈16% above current) ^[52]. JPMorgan, Mizuho and others see even higher targets (~$410–420) citing AVGO as “king of AI custom chips” ^[53]. After closing Oct. 10 at $324.63, AVGO was trading near $336 on Oct. 13 pre-market ^[54], riding a broad tech rebound.

AMD has raced higher on AI momentum as well. Its stock shot up ~30–34% on Oct. 6 when AMD announced a historic chip partnership with OpenAI ^[55]. The deal includes warrants allowing OpenAI to buy up to 10% of AMD at $0.01 per share (vesting if shares hit $600) ^[56]. CEO Lisa Su hailed the partnership as “certainly transformative… for the industry” ^[57]. AMD’s market cap now tops $330 billion, making it the world’s 3rd-largest chipmaker ^[58]. It briefly reached ~$235–240 mid-week before the late selloff, closing Oct. 10 at $214.90 ^[59]. By Oct. 13 morning it traded around $224 ^[60]. Analysts have raced to boost targets (Jefferies sees $300, UBS $210, HSBC $200) ^[61], but caution the stock now trades near a rich ~90× forward P/E ^[62]. Technical indicators are slightly overbought, so a short pullback seems plausible before the next surge ^[63].

Other “Magnificent Seven” names held up relatively well on Monday: Nvidia futures jumped ~3.3%, Tesla +2.8%, Meta +1.9%, Microsoft +1.5%, Alphabet +1.6% ^[64] ^[65]. But the week’s big decline serves as a reminder of risk. Many chips, cloud and AI plays trade at double-digit growth rates built into current prices. As one expert notes, “Valuations could now be at odds with the uncertain economic and geopolitical outlook, leaving markets susceptible to a disorderly adjustment.” ^[66] (FSB chair Andrew Bailey, speaking to G20 ministers.)

Commodities & Currencies: Gold Shines, Dollar and Oil

Gold’s ascent to record highs (and sudden partial retreat) speaks to the uncertainty. On Oct. 9, spot gold fell ~2%, slipping just under $4,000 ^[67], as a Gaza ceasefire eased Middle East fears. Metals trader Tai Wong said speculators were taking “some gold chips off the table” after the ceasefire deal, though he noted the bullish drivers (debt, rate-cut hopes, etc.) remain intact ^[68]. Still, bullion remains extremely bid: by Monday it briefly poked above $4,078 an ounce ^[69], and analysts like BofA see $5,000 within reach ^[70]. Silver and platinum also hit multi-year highs on the safe-haven bid.

Energy markets eased after a short spike on ceasefire news. U.S. crude dipped below $61.50/barrel on Oct. 9 ^[71] as the ceasefire and stronger dollar dented oil. Natural gas and other commodities saw modest moves. The dollar strengthened (DXY ~2% off 2-month highs) ^[72], which undercut gold and benefited USD assets. Crypto markets rebounded somewhat after Friday’s selloff (Bitcoin ~+$2,000 to ~$115K on Monday) ^[73], reflecting broader risk-on sentiment.

Outlook: Cautious Optimism, Eyes on Fed and Earnings

Near-term: With few domestic data releases (thanks to the shutdown), markets are watching Fed speakers and company earnings. Powell speaks Tuesday on the economic outlook; any hawkish hints could sap equities. Major banks kick off Q3 results next week – analysts see only ~9% EPS growth (down from 13.8% in Q2) ^[74] ^[75]. Strong results will be needed to justify lofty stock valuations (~90% total S&P gain since late-2022). As UBS notes, “the bull market remains intact, so pullbacks should offer an opportunity for investors underallocated to equities” ^[76], implying buy-the-dip mentality among some strategists.

Medium-term: Trade developments are crucial. If Trump and Xi meet in Seoul (mid-Nov) with thawing rhetoric, the October crash could be temporary. If tensions escalate further, strategists like Morgan Stanley warn stocks could correct another ~8–11% ^[77]. Geopolitically, any U.S. government resolution (averting shutdown) would ease anxiety. For now, experts expect volatility: “Investors who have held their nerve are cleaning up, yet the drums of worry are banging louder each day,” AJ Bell’s Russ Mould observes ^[78].

Stock picks/strategies: In this environment, defensive and value plays have outperformed. Utilities and staples saw modest gains in the pullback ^[79]. Banks and airlines (Delta, United) got a lift on Friday after solid earnings and sales reports ^[80] ^[81]. On the flip side, high-flying tech needs steady news: any disappointment could spark further profit-taking. Analysts still rate AMD, NVidia, Broadcom as Buys (with ambitious price targets) ^[82] ^[83], betting on secular AI demand. In short, valuations are full, and many investors agree that a healthy pause is underway. As one market watcher put it, “Given everything going on with the shutdown, political turmoil, markets have been strong. A pullback would be healthy.” ^[84]

In summary, Wall Street is taking a breather after a torrid run. The “rally takes another breather” (as a Yahoo Finance live headline noted) amid mixed signals ^[85]. Key things to watch: Fed/policy cues, trade news, earnings, and whether the AI-led momentum can withstand these headwinds. All eyes will be on October 14 (Powell’s speech) and the earnings confessional next week.

Sources: Latest market reports and analysis from Reuters ^[86] ^[87], Yahoo Finance, Finviz, and financial research sites (TechStock²/ts2.tech) ^[88] ^[89] ^[90], as well as expert quotes from JPMorgan’s Jamie Dimon, Citi strategists, etc. (See citations above).

Layoffs have started so regular government shutdown theme is in question: Mohamed El-Erian