Investors have had a very volatile week. What’s next for the stock market?

The stock market is in limbo. It could be there for a while.

After weeks of decline in technology stocks, bulls were hoping a strong earnings report from Nvidia (NVDA) would revive the faltering AI trade. They got solid profits, but not yield. Stocks sold off on Thursday as the Cboe Volatility Index (VIX), or “fear index,” jumped to its highest level since the April tariff debacle.

Stocks rebounded on Friday, but several of Wall Street’s favorite AI stocks — Nvidia, Broadcom (AVGO), Palantir (PLTR), Oracle (ORCL), and Vistra (VST) — fell again, suggesting that AI sentiment remains in the doldrums. Market experts are now trying to navigate the path ahead after a week of confusing signals and choppy action.

The AI ​​pool has been compromised before. Technology stocks fell in July 2024 amid concerns about overinvestment in artificial intelligence, but found their footing and rose through the end of the year. Fears of overspending resurfaced in January when Chinese startup DeepSeek came onto the scene. This setback was also short-lived.

“We’re having another DeepSeek moment,” Wedbush analyst Dan Ives, a Wall Street tech bull zealot, wrote on Friday. Ives compared today’s AI bubble debate to historical examples of tech skeptics getting it wrong, such as the iPhone spinoff in 2008 and Microsoft’s shift to cloud computing in 2014.

“This AI revolution is just beginning today,” he wrote. “We think technology stocks and AI winners should be bought given our view that this is the third year of a 10-year cycle.”

“The big risk facing the technology sector — and by extension the broader stock market — is not a sudden collapse in valuations,” Barclays analyst Ajay Rajadhyaksha wrote on Thursday. “It’s those profits that have been ongoing [an] “The absolute volatility over the last three years – it suddenly starts to get frustrating, which then leads to a mass exodus.”

Rajadhyaksha does not believe such an outcome is likely, although he acknowledges that there are risks associated with AI that investors should monitor. Technology companies are increasingly turning to credit markets to finance their investments in AI, which until recently were funded primarily through cash flows. This increases the exposure of the broader economy to the AI ​​boom, and increases the sensitivity of interest rates to the technology. Energy constraints could also slow AI spending, potentially dealing a blow to “pick and shovel” suppliers like Nvidia, he said.

“A significant change in market leadership appears unlikely in the absence of significant macro-environmental disruption,” Rajadhyaksha concludes.

The Federal Reserve’s monetary policy meeting in December could be another drag that keeps stocks in a volatile trend in the next few weeks. Policymakers appear to be deeply divided on how aggressively to cut interest rates. Some see signs of a weak labor market as a good reason to cut interest rates despite evidence that inflation is rising. Their hawkish counterparts say economic uncertainty calls for caution. The government shutdown has left gaps in official data.

Yesterday’s September jobs report – the last snapshot of the labor market that Fed officials will see before the start of their meeting on December 9 – sent mixed signals. The United States added more jobs than expected, but the unemployment rate rose to its highest level in four years. Economists at Deutsche Bank on Thursday described the report as a Rorschach test that gives each camp within the Fed plenty of ammunition to make its case.

Experts say the Fed’s interest rate decisions could be crucial in renewing or dampening the AI ​​rally. They say lower interest rates are likely to fuel the rally by injecting liquidity into the market. If interest rates stay the same, technology stocks may have a hard time regaining their momentum.

Investors are largely uncertain about the Fed’s next steps. Futures market data includes the odds of a December rate cut, which was considered almost certain a month ago, below 40% yesterday. Those odds jumped again to 70% on Friday after an official indicated he was open to a cut next month.

“In a vacuum of unclear price and labor market signals, markets are vulnerable to exaggerated volatility, with sentiment and technical structure dominating short-term trading,” Bitonix analysts wrote.