It was a week of two starkly different stories. For four days, U.S. markets surged on a wave of AI-driven optimism and hopes for a dovish Federal Reserve, pushing the S&P 500 and NASDAQ to new all-time highs. But this rally was built on a fragile foundation, choosing to ignore a U.S. government shutdown, a blackout of official economic data, and signs of a slowing economy.
The galss house market shattered on Friday. The sudden threat of new U.S.-China tariffs acted as a brutal reality check, triggering a severe sell-off that wiped out the week’s entire advance. The sharp reversal exposed the underlying anxiety in a market that had been running on hype, forcing investors to rapidly reprice global growth risks and abandon high-flying tech stocks for the safety of defensive assets.
Market Performance: From All-Time Highs to a Painful Reversal
The week began with powerful upward momentum. The S&P 500 sailed past the 6,700 mark for the first time on Monday and, along with the NASDAQ, continued to set new records through Thursday. Investors confidently bid up stocks, buoyed by a landmark partnership between AMD and OpenAI that supercharged the AI trade.
The optimism vanished on Friday, October 10. The geopolitical shock sparked a broad-based plunge, with the S&P 500 plummeting 2.7%, the Dow Jones falling 1.9% (878 points), and the tech-heavy NASDAQ sinking 3.6%. The one-day rout pushed all three major indices into the red for the week, marking only the third negative week in the last ten for the S&P 500.
| Index | Close (Oct 10) | Weekly Change |
| S&P 500 | 6,552.51 | -2.4% |
| NASDAQ Composite | 22,204.43 | -2.5% |
| Dow Jones Ind. Avg. | 45,479.60 | -2.7% |
Sector Breakdown: Defensive Havens Rise as Growth Stocks Tumble
The dramatic shift from risk-on to risk-off was crystal clear in the sector performance. Only two of the 11 S&P 500 sectors finished the week with gains: the classic defensive Utilities sector (+1.4%) and Energy (+0.6%). As fear spiked, investors dumped stocks sensitive to economic growth and fled to sectors known for stable demand and reliable dividends.
The hardest-hit sectors were those most exposed to global trade and interest rate sensitivity. Financials plunged 4.0% on fears that falling Treasury yields would squeeze bank profits. Consumer Discretionary (-3.3%) and Information Technology (-2.9%) the week’s early leader also saw sharp reversals as investors shed high-valuation growth stocks.
Cross-Asset Signals: A Market Bracing for a Storm
Clues of rising anxiety were present all week, even before Friday’s collapse.
- Volatility and Bonds: The CBOE Volatility Index (VIX), the market’s “fear gauge,” crept higher throughout the week before spiking over 31% on Friday to close at 21.66, a clear signal of rising panic. Meanwhile, yields on U.S. Treasury bonds fell, with the benchmark 10-year yield dropping to 4.05%. Initially, the market interpreted falling yields as a positive sign, believing it would encourage the Fed to cut rates without triggering a recession. However, Friday’s news forced a re-evaluation, with falling yields suddenly signaling a “bad” slowdown driven by geopolitical conflict.
- Oil vs. Gold: The divergence between key commodities was telling. West Texas Intermediate (WTI) crude oil, a proxy for global growth, fell 7% to a four-month low near $61 per barrel on fears of slowing demand. In contrast, gold, a classic safe haven, rallied for an eighth straight week, briefly crossing the historic $4,000 per ounce mark. This stark split showed investors were specifically pricing in a stagflationary risk a slowing economy combined with accommodative central bank policy.
The Backdrop: A Data Blackout and a Divided Fed
A key factor contributing to the market’s fragility was the ongoing U.S. government shutdown, which prevented the release of crucial economic reports, including the September jobs report. This “data blackout” forced investors and the Fed to rely on weaker, private-sector data, which painted a picture of a slowing economy.
This environment amplified the market’s dovish interpretation of the Federal Reserve. Minutes from the Fed’s September meeting, released on Wednesday, revealed a deeply divided committee. While the Fed delivered a 25-basis-point rate cut, some members preferred no cut, while another argued for a more aggressive 50-basis-point cut. The market chose to focus only on the median projection for two more cuts in 2025, taking it as a green light to buy stocks and ignoring the underlying uncertainty.
Corporate News: AI Shines Before the Sell-Off
Early in the week, corporate news was dominated by the AI frenzy.
- AMD and OpenAI: A major partnership announced Monday sent AMD shares soaring nearly 24% that day, creating a halo effect for other AI-related stocks like Super Micro Computer (SMCI) and Dell (DELL).
- Early Earnings: The first Q3 earnings reports were positive. Delta Air Lines (DAL) and PepsiCo (PEP) both beat analyst expectations.[EDITOR’S NOTE: Please verify the Q3 revenue figure for Delta. The draft lists a wide range ($15.2B – $16.7B) instead of a single number. Please also add the consensus EPS estimate for PepsiCo, which is currently listed as N/A.]
The Bottom Line: Why It Matters for Investors
The whiplash of the past week is a powerful lesson in market psychology. A compelling narrative in this case, the transformative power of AI can temporarily blind investors to clear and present risks. The market’s rally was built on selective perception, embracing the potential for Fed rate cuts while ignoring the reason for them: a weakening economy.
Friday’s geopolitical shock didn’t create a new risk; it simply forced the market to acknowledge the risks it had been ignoring all week. For traders and investors, this serves as a critical reminder that even in a bull run, underlying fundamentals and geopolitical risks cannot be dismissed.
Disclaimer: This article is for informational and educational purposes only. It is not intended to be and should not be construed as financial, investment, or legal advice. The information contained herein is not a recommendation or solicitation to buy, hold, or sell any security. Day Trade Daily and its authors are not financial advisors. Investing in the stock market involves risk, including the loss of principal. Please consult with a qualified professional before making any financial decisions.
