Why Stocks Are Falling Even on Rate-Cut News: What Happens to AI Stocks?

A minor panic.

That’s how I would describe today’s stock market.

Investors briefly relaxed after the rebound that followed the wave of fear on August 5, but as the market turns down again, a sense of unease is clearly lurking beneath the surface.

If rates are supposed to be coming down, why do my stocks look like this?

Will we be able to see another rebound this time?

At the Jackson Hole Symposium, Federal Reserve Chair Jerome Powell spoke about the need to cut interest rates.

When interest rates fall, deposit and loan rates go down. That effectively creates a situation where saving puts you at a disadvantage, while borrowing works in your favor. If you’ve already borrowed money and saving hurts you, that money naturally flows into consumption and investment. Through this process, stock prices rise and we enter a period when investors are broadly happy.

After holding at the highest levels since the financial crisis, rates are now almost certain to be cut in September. Not only the U.S. Federal Reserve (Fed), but also the European Central Bank (ECB), the Bank of England (BOE), the People’s Bank of China (PBOC), the Swiss National Bank, Sweden’s Riksbank, the Bank of Canada, and the Bank of Mexico—major central banks around the world—are signaling a shift toward rate cuts.

Until just the end of last year, investors around the world hung on Powell’s every word. Were rates being raised too quickly? Could a strong labor market really withstand such high rates? Do you remember the hard-landing and soft-landing scenarios?

Powell is finally signaling that he’s ready to act. This is the good news everyone has been waiting for, yet the stock market’s reaction looks very different. As if nothing happened, have investors simply forgotten?

Here’s a breakdown of why stock prices are falling.

Because of the mechanism described earlier, rate cuts are generally seen as positive. This time, however, investors seem worried that the cuts are actually an attempt to fend off a recession.

U.S. manufacturing activity has contracted for five consecutive months. The construction sector has also been weak, and the latest jobs report shows that hiring has slowed sharply.

This can be interpreted as concern that the Fed has been excessively tight on the economy and that the economy is now entering a recessionary phase.

Following this logic, anxiety may persist until the employment data is released on Friday. Investors are hoping that the jobs report will prove the resilience of the U.S. economy.

Technology stocks have been the biggest beneficiaries of this year’s stock market rally, thanks to the AI boom. The way AI has been introduced to the world has left many investors in awe, and that awe quickly turned into capital chasing a grand technological transformation.

Recently, however, every time the market has fallen, tech stocks have dropped even more than the broader market.

On September 3, while the S&P 500 index fell 2.12%, the technology sector within the S&P 500 dropped 4.43%.

And that’s not all.

The S&P 500 fell 1.37% on August 1, 1.84% on the 2nd, and 3% on the 5th.

The technology sector declined 3.36% on August 1, 1.99% on the 2nd, and 3.78% on the 5th.

This means that whenever the market sold off sharply, tech stocks led the decline. Up to now, they had outperformed the market on the back of the AI boom, but they are now facing concerns that expectations for AI-related earnings have become excessively high.

On this point, we can look to a CNBC interview from August 26. Contrary to the worries, the takeaway was that the situation is actually positive.

Callie Cox, chief market strategist at Ritholtz Wealth, acknowledges the slowdown in the labor market but stresses that it is not yet an emergency, explaining that there is still ample time to respond. Because these are preemptive, measured rate cuts rather than cuts forced by a recession, she argues, investors have good reason to celebrate.

Delano Saporu, CEO of New Street Advisors Group, also agreed that the situation is still worth celebrating, while at the same time voicing concern about the labor market. A loosening labor market means fewer jobs or higher unemployment. That, in turn, calls for monetary easing, and he explains that investors will only feel comfortable if the central bank cuts rates quickly enough.

Kelly Cox goes on to say that, for now, the focus is more on commentary than on earnings themselves, and that every sector looks attractive. This suggests that attention is shifting away from tech stocks toward other companies that benefit from rate cuts. It implies that it is now the turn of those who did not profit from the tech‑led bull market to finally benefit. But this is a shift in focus, not a sign that the AI market is cooling. Kelly Cox says she is one of those people who watches closely every time Nvidia reports blowout earnings, and reiterates that AI remains highly attractive.