• Major US benchmarks partially recover from recent declines driven by valuation concerns
  • Investor sentiment shifts amid ongoing uncertainty about AI growth sustainability and Federal Reserve policy
  • Market remains fragile with tech sector performance closely tied to earnings and interest rate expectations

A Fragile Rebound

The S&P 500 rose 0.7% to reach a session high while the Nasdaq 100 advanced 0.4% on Thursday, marking a partial recovery for major US stock benchmarks after several days of sharp declines. The rebound comes after both indices had fallen sharply in previous sessions, with the S&P 500 dropping by 1.5% and the Nasdaq 100 by more than 2%, reaching their lowest intraday levels in a month earlier this week.

Trading desks reported cautious buying interest returning to the market, particularly in oversold technology names, though volumes remained below average. "We're seeing some dip-buying after the brutal selloff, but conviction is thin," said one senior trader at a major investment bank who asked not to be named discussing client flows. "Everyone's still watching the Fed and waiting for the next tech earnings data point."

The Fed and Tech Valuation Pressures

The recent volatility has been driven by shifts in investor sentiment toward AI and tech companies, with uncertainty about the sustainability of AI-related growth emerging as a key concern. Leading AI and semiconductor companies saw sharp declines after earnings reports raised questions about the reliability of future revenue streams, despite strong prior results.

Investor expectations that Federal Reserve interest rates will remain elevated have weighed heavily on both benchmarks throughout the recent downturn. Higher rates can dampen economic growth and reduce the attractiveness of equities, particularly for technology companies whose valuations often depend on future earnings potential. This dynamic has created a challenging environment for growth stocks that had previously led the market higher.

Diverging Sector Fortunes

While technology stocks showed signs of stabilization, other sectors demonstrated continued strength. Companies like Walmart, which recently posted strong results and raised guidance, have seen gains, highlighting the divergence in sector fortunes as investors rotate into more defensive names.

Year-to-date, the Nasdaq 100 is up only 4.33%, a modest gain compared to previous years, underscoring how 2025 has been much more volatile than the AI-driven rally in 2023. The current fluctuations mirror past periods of market nervousness when rising interest rates or doubts about high-growth sectors led to sharp rotations away from recent winners.

Market participants remain divided on the near-term outlook, with some warning of further turbulence if AI company revenue fails to meet expectations, while others see potential for renewed gains if inflation cools and earnings remain strong. The overall market context remains fluid, with sentiment fragile and likely to be especially responsive to policy signals and tech sector news over the coming weeks.