Mega-Cap Weakness and Strong Data Extend Market Pullback

The stock market closed lower for the third straight session on Thursday, with the S&P 500 and Nasdaq Composite both falling 0.5% and the Dow Jones Industrial Average slipping 0.4%. Early pressure on mega-cap stocks combined with stronger-than-expected economic data weighed on investor sentiment and trimmed expectations for additional rate cuts this year.

A firmer labor market underscored the shift in outlook. Initial jobless claims came in at 218,000, below the consensus of 238,000, reinforcing signals of resilience in employment conditions. That, in turn, challenged the rationale for further easing. According to the CME FedWatch Tool, the probability of an October rate cut slipped to 85.5% from 91.9% a day earlier, while December’s odds fell to 60.5% from 73.3%.

Fed commentary added to the crosscurrents. Kansas City Fed President Jeffrey Schmid described current policy as “slightly restrictive” and “where it needs to be,” while Governor Stephen Miran reiterated his support for multiple cuts. The mixed messaging left traders uncertain about the Fed’s trajectory heading into year-end.

Market breadth reflected the late-session weakness, with decliners outpacing advancers by roughly 3-to-1 on both the NYSE and Nasdaq. Mega-caps continued to lag, sending the Vanguard Mega Cap Growth ETF down 0.5%. Still, the market-weighted S&P 500 outperformed the equal-weighted version, underscoring the broader pullback outside of the heaviest names.

Energy stocks stood out as the sole bright spot. The sector gained 0.9% as refiners like Valero Energy and Marathon Petroleum rallied to their best levels since April 2024. Elsewhere, information technology clawed its way back from deeper losses, aided by late strength in NVIDIA, Apple, and a sharp 8.9% surge in Intel tied to reports of a potential Apple investment. Oracle, however, slipped 5.6% despite being finalized as a lead partner in the TikTok deal.

On the downside, health care (-1.7%), consumer discretionary (-1.5%), and materials (-1.2%) posted the steepest declines. Smaller-cap indices underperformed, with the Russell 2000 losing 1.0% and the S&P Mid Cap 400 down 0.6%.

Earnings also drove notable stock-specific moves. CarMax plunged 20% after a sharp EPS miss, making it the worst-performing S&P 500 name. Accenture and Jabil retreated despite earnings beats, while KB Home slipped modestly after topping expectations, dragging homebuilders lower.

With the market’s pullback extending and rate cut probabilities slipping, attention now turns to Friday’s PCE Price Index. Another firm inflation reading could further undermine the case for additional easing and test the market’s recent run of record-setting highs.

The FTinvest 11 portfolio index faced a tough session today, with persistent weakness dragging it steadily lower throughout the day. After struggling to regain momentum from the opening bell, the index closed down 1.28% at 854.68, marking one of its sharpest single-day declines in recent weeks.

The drop reflected a broad-based pullback across multiple components, with market sentiment dampened by renewed concerns about valuations and the durability of recent gains. While there were a few moments of attempted stabilization during midday trading, sellers ultimately retained control, pushing the index firmly into the red by the close.

Despite the setback, today’s weakness comes in the context of an extended period of strength that has repeatedly carried the index to record highs. For now, the retreat underscores how fragile investor conviction can become when markets face a combination of stretched valuations and uncertain macro conditions.

The decline leaves FTinvest 11 still well above its long-term trendline, though the sharp reversal will place greater attention on how it performs in the coming days. A renewed push higher could reframe today’s move as healthy consolidation, while additional pressure may test investors’ willingness to keep chasing highs.