U.S. stocks plummet across the board! AI stocks drop 25%, and disagreements over Fed rate cuts spark panic.

On November 6, the U.S. stock market’s three major indices all plummeted, with the Nasdaq dropping over 2% at one point. Large-cap tech stocks collectively tumbled, especially those related to AI. AI-related stocks experienced a broad sell-off, with Duolingo plunging over 25%. The VIX volatility index surged more than 8%, signaling heightened market fear. Inside the Federal Reserve, significant disagreements emerged over the path of interest rate cuts. Goolsbee remained cautious due to missing inflation data, Harker advocated for a hawkish stance, and Williams emphasized the continuation of a low-interest-rate environment.

Major U.S. stock indices all decline sharply, led by tech stocks

(Source: Google)

On November 6, Eastern Time, U.S. stock indices opened lower and continued to decline throughout the day. By the close, the S&P 500 fell 1.12%, the Nasdaq dropped 1.9%, and the Dow declined 0.84%. This broad decline reflects extremely pessimistic market sentiment, with investors selling off risk assets. The Nasdaq, heavily weighted with tech stocks, suffered the largest loss at 1.9%, indicating tech stocks bore the brunt of selling pressure.

Large-cap tech stocks also tumbled collectively. AMD dropped over 7%, NVIDIA, Tesla, and Qualcomm declined more than 3%, while Amazon, Meta, and Oracle fell over 2%. Microsoft and TSMC ADRs declined more than 1%, and Apple and Broadcom saw modest declines. AMD’s 7% plunge was particularly notable, as it is the second-largest player in AI chips after NVIDIA. The 3% drops in NVIDIA and Tesla are significant given their enormous market caps, representing hundreds of millions of dollars in market value evaporating.

AI-related stocks broadly declined, further highlighting investor concerns over high valuations in the tech sector. AI application stocks, such as Duolingo, experienced a massive drop of over 25%, marking the largest single-day decline in history. The company issued guidance below expectations and emphasized focusing on “user growth” rather than short-term monetization. This narrative echoes past tech bubble periods, where companies struggling to demonstrate profitability emphasize user metrics. Market patience with this story is waning.

The VIX fear index surged over 8%, a clear signal of rising market panic. Known as the “fear gauge,” VIX measures the implied volatility of S&P 500 options. When VIX spikes, it indicates investors expect increased market volatility and are actively buying put options for protection. An 8% single-day increase shows risk appetite is rapidly diminishing.

OpenAI executives’ comments spark fears of an AI bubble

Analysts point out that recent remarks from OpenAI executives have intensified discussions about an “AI bubble,” compounded by signs of worsening U.S. employment conditions, leading to increased market anxiety. OpenAI CFO Sarah Friar, during an event on Wednesday, said the company is seeking to build an ecosystem backed by banks, private equity, and the federal government to support financing for its massive chip investments.

The term “backstop” carries sensitive connotations in finance, reminiscent of government bailouts during the 2008 financial crisis. When a private tech company discusses needing government guarantees, markets immediately interpret this as potential financial trouble or unsustainable business models. Such misunderstandings can quickly fuel skepticism about AI investment returns.

As public sentiment heats up, Friar clarified on Thursday that OpenAI is not seeking government guarantees for its infrastructure investments. The use of “backstop” was a miscommunication. OpenAI CEO Sam Altman explained that the CFO meant the U.S. government should establish a “national strategic compute reserve” through large-scale procurement agreements, serving public interests rather than helping private profits.

Later, Trump-era AI advisor David Sacks responded: “The federal government won’t rescue AI companies. At least five leading AI firms in the U.S. would replace any that fail.” While this clarifies the government’s stance, it also hints that AI companies might be under financial pressure, otherwise such a firm stance wouldn’t be necessary.

Collapse in employment and spreading layoffs

The market’s sharp decline is also driven by deteriorating employment conditions. Challenger, Gray & Christmas reported that in November, U.S. companies announced 153,074 layoffs, mainly in tech and warehousing sectors, a 183% increase from September and nearly triple the same period last year. This is the highest October figure since 2022. Additionally, 2025 is shaping up to be the most layoffs since 2009.

These figures reflect real economic pain—hundreds of thousands of families losing income suddenly. The concentration of layoffs in tech and warehousing sectors indicates that even the industries that performed best in recent years are feeling the economic slowdown. The AI boom of the past two years led to massive hiring, but now many companies find their revenues can’t support their inflated workforce.

Revelio Labs’ latest data shows U.S. non-farm employment decreased by 9,100 in October, after a 33,000 increase the previous month. Though small, the shift from job gains to losses is a worrying sign. The employment market is a key indicator of economic health; when it begins to contract, a recession often follows.

Elias Haddad of Brown Brothers Harriman & Co. predicts the Fed will cut interest rates again by 25 basis points in December, as tightening policies may worsen the fragile employment situation, and inflation risks remain subdued. Current economic data show a weakening job market without renewed inflation pressures, giving the Fed room to continue easing.

Internal Fed divisions intensify over rate policy

Uncertainty about the Fed’s rate cut trajectory is a major factor behind the market’s decline. Recently, multiple Fed officials have spoken, revealing deep divisions. On November 6, Chicago Fed President Austan Goolsbee said that due to the government “shutdown” causing missing inflation data, he remains cautious about further rate cuts.

Goolsbee, who previously advocated gradual rate reductions, expressed concern over the absence of key inflation reports, especially given recent signs of rising inflation. He stated, “If inflation becomes a problem, it will take a long time to notice; if the labor market deteriorates, we’ll see changes almost immediately.” Goolsbee, who has voting rights at the December FOMC meeting, will help determine whether to continue the rate cut pace.

In contrast, Cleveland Fed President Beth Hammack delivered a more hawkish message at an event at the New York Economic Club, emphasizing that inflation remains a more urgent concern than a softening labor market. She believes current interest rates are “almost non-restrictive” and advocates for continued monetary policy pressure on inflation.

The three Fed factions: dovish, hawkish, and neutral

Doves (Goolsbee): Focus on employment deterioration; supports rate cuts but remains cautious due to data gaps

Hawks (Hammack): Emphasizes inflation risks; believes current rates are “almost non-restrictive,” opposes aggressive easing

Neutral (Williams): Believes low-rate environment persists; estimates neutral rate around 1%; current data more important than theory

Hammack estimates that inflation will only reach the Fed’s 2% target after 2026, aligning with the median forecast of the 19 policymakers. This suggests the Fed may not meet its inflation goal for most of the next decade and risks embedding high inflation into the economy.

John Williams, President of the New York Fed, also stated that the era of low interest rates continues, with a neutral rate around 1%. In practical policymaking, current data outweighs the neutral rate estimate. Michael Barr, a Fed governor and former Vice Chair for Supervision, emphasized the importance of ensuring a healthy labor market.

New Fed Governor Milan, speaking the day before, said he believes continued rate cuts in December are “reasonable,” including a further cut at the upcoming meeting. These statements highlight growing internal disagreements within the Fed over the rate path, adding uncertainty ahead of the December policy meeting. When markets cannot determine the Fed’s next move, risk assets tend to be sold off.