U.S. stocks reversed their uptrend with a three-day losing streak following a rate cut by the Federal Reserve, marking the longest losing streak in nearly two months. Stronger-than-expected economic data reshaped market expectations around the Fed’s future policy path and drove renewed volatility across financial markets.

The strength of U.S. economic data led to a small recalibration of interest-rate expectations, with Fed-funds futures traders pricing in an 83% probability of a quarter-point rate reduction in late October. Market expectations for a December cut also scaled back according to the CME FedWatch Tool.

Concerns about the sustainability of the rally have been raised, particularly regarding the stretched valuations of megacap technology names. Fed Chair Jerome Powell cautioned that stocks were “fairly highly valued,” echoing worries about the sustainability of the artificial-intelligence trade.

The stock market has been on a relentless record-setting climb since early August, fueling speculation that the rally may be overdone. Megacap technology names have led the decline on Wall Street, with some stocks tumbling over 1.6% this week. Oracle Corp. has also started giving back gains despite a new AI data center project.

U.S. stocks are currently at their most vulnerable levels since April lows, with the S&P 500 not having dropped 3% or more from a recent high since April. The index hasn’t fallen back to test its 50-day moving average, a key technical level. If the S&P 500 were to drop down to its 50-DMA, it would mark the largest pullback since April.

After defying seasonal weakness in September, October could prove to be a tougher month for stocks, especially if cracks start to appear in the narrative around Fed rate cuts. Concerns about the need for further rate cuts in an economy growing at a 3.8% annualized rate could limit enthusiasm for stocks in the coming days. Stock markets experienced a significant pullback, with the Dow Jones Industrial Average dropping over 600 points. Investors are questioning if this is the correction they have been anticipating. Concerns over inflation, rising bond yields, and potential interest rate hikes are fueling market volatility. Experts are closely monitoring the situation.

Inflation fears continue to weigh on markets as the Consumer Price Index rose by 0.8% in April, surpassing expectations. This marks the largest increase since 2009, sparking concerns about potential interest rate hikes by the Federal Reserve. Rising prices for goods and services are putting pressure on consumers and businesses alike.

Tech stocks were hit hard during the market downturn, as the Nasdaq Composite fell over 2%. Companies like Apple, Amazon, and Microsoft saw significant losses. The tech sector has been a major driver of market gains in recent years, but is now facing increased scrutiny amid inflation and interest rate concerns.

Investors are closely watching the Federal Reserve for any signals on potential policy changes in response to rising inflation. The central bank has indicated that it is willing to let inflation run above its 2% target, but may need to take action if prices continue to surge. Markets are awaiting further guidance from Fed officials.

Read more at Yahoo Finance: Stocks fall for the third day in a row. Is this the start of a deeper pullback?