Stocks dropped Thursday amid declining expectations for rate cuts and on valuation concerns, especially for high-flying growth stocks. The Dow Jones industrial average and the S&P 500 both fell 1.7 percent and the Nasdaq slipped 2.3 percent. US Treasury yields and oil prices rose while the dollar fell.

Renewed worries that big technology leaders and AI shares are overvalued and rising market interest rates spurred risk-off selling. Markets a few weeks ago saw a December cut as nearly certain but markets now see only 50-50 odds of a rate cut. Diminished rate cut expectations partly reflect the view that key economic indicators will be delayed longer than expected after the government reopening or that some indicators will not be issued at all. Reduced economic visibility was seen as raising the prospect the Federal Reserve will remain on hold through year end, especially given cautious comments lately from Fed officials.

Losses hit nine of 12 S&P sectors with consumer discretionary and technology suffering the most, with Nvidia leading the day's selloff as it has led the recent AI rally. Value stocks have outperformed this week amid rotation out of growth and momentum shares.

Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.

Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.