In a sudden reversal that caught many investors off guard, both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed Thursday’s trading session deep in negative territory following a strong start.
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While Nvidia’s (NVDA) strong quarter provided a boost to the ETFs, the Bureau of Labor Statistics’ (BLS) jobs report and market warnings from Fed Governor Lisa Cook and Bridgewater founder Ray Dalio ultimately steered stocks lower.
September’s jobs report, which was delayed by six weeks due to the government shutdown, showed nonfarm payrolls rising by 119,000, above the estimate of 50,000. At the same time, the BLS revised August’s payrolls to a loss of 4,000 from 22,000 additions, and the unemployment rate ticked higher to 4.4%, the highest level since October 2021.
“Bottom line: The economy added an average of 44k jobs a month for the past 4 months. That’s barely ‘treading water’ and explains why unemployment is now 4.4% –> highest since Oct 2021,” said Navy Federal Credit Union Chief Economist Heather Long in an X post.
Furthermore, Dalio said on CNBC’s “Squawk Box” that “There’s definitely a bubble in markets.” He described a bubble as an “unsustained amount of buying” and an “unsustained amount of valuation,” adding that the current market environment is 80% of the way there compared with the bubbles seen in 1929 and 2000.
“Don’t sell just because there’s a bubble,” he said. “But if you look at the correlations with the next 10 years’ returns, when you are in that territory, you get very low returns.”
Dalio doesn’t see an immediate catalyst that would pop the bubble, although he explained that previous catalysts included tightening monetary policy, wealth taxes, and the need for cash. He recommended portfolio allocation to gold (XAUUSD), a safe-haven asset, in order to reduce risk.
Fed Governor Lisa Cook added to pressure after she warned of an “increased likelihood of outsized asset price declines” amid elevated valuations in stocks, bonds, leveraged loans, and the housing markets. On the bright side, Cook believes that the financial system is resilient enough to sustain such an event without experiencing a significant impact.
The S&P 500 (SPX) closed with a 1.56% loss, while the Nasdaq 100 (NDX) fell by 2.38%.
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