A report showing U.S. wholesale inflation at 2.9% last month, far higher than the 1.6% economists had expected, disrupted the market. The figure was so much worse than expected that it could convince the Federal Reserve to wait longer to cut rates.Lower interest rates would boost the economy and investment prices, but at the same time risk worsening inflation.
The discouraging data added to worries on top of a Wall Street where investors are once again crushing software companies and others whose businesses could eventually be displaced by AI-powered competitors.
Block, the company behind Cash App, Square and other companies, signaled what AI could do after CEO Jack Dorsey said he would cut its workforce by nearly half. While Block’s profits are growing and more money is being sent to shareholders through share buybacks.
“Intelligence tools have changed what it means to build and run a business,” Dorsey said in a letter to shareholders as he announced Block’s latest earnings results. “We already see it internally. A significantly smaller team can do more and better, using the tools we are developing.”
Block is cutting more than 4,000 jobs from its more than 10,000 employees. The stock rose by almost 20%.
Capable AI tools that can replace humans can also replace entire companies, or at least eat away at their profit margins. Fears of AI disruption have led to sudden and rapid sell-offs in stocks seen as potentially threatened, rolling across seemingly disparate sectors such as trucking logistics and legal services.
Salesforce, whose platform helps customers manage their relationships with customers, fell 4.4%. The company gave back a 4% gain from the day before after reporting better profit than analysts expected.
Even the companies that are currently seeing their sales and profits rise due to AI-related demand are also weakening. Nvidia fell 2.6%, a day after posting its worst loss since last spring, even as the company reported better profit than analysts expected and forecast higher revenue for the current quarter.
Rival chip companies fell by similar amounts, with Broadcom down 2.6%. These companies are concerned not only about whether their stock prices can continue after the huge gains of recent years, but also about whether the massive spending that fuels their growth can continue. Can big spenders like Amazon, Alphabet and others potentially recoup all their billions of dollars in AI investments through increased productivity and profits in the future?
On Wall Street’s winning side was Netflix, which rose 8.6% after walking away from its bid to buy Warner Bros.’ studio and streaming businesses. Discovery to buy. That put Skydance-owned Paramount in a position to acquire its Hollywood rival.
Shares of Paramount Skydance rose 2.2%, while Warner Bros. Discovery fell 1.9%.
On the bond market, the yield on the 10-year government bond was 3.97%. After the inflation report, the price rose, but fell from the level of 4.02% late Thursday.
In foreign stock markets, indexes in Europe and Asia were mixed. South Korea’s Kospi fell 1% from its last record high, and Hong Kong’s Hang Seng rose 0.9% in two of the world’s bigger moves.
On energy markets, the price for a barrel of US crude rose 3.2% to $67.27. Concerns about rising tensions between the United States and Iran over Iran’s nuclear program have caused major swings.
The US military has already amassed a huge fleet of aircraft and warships in the Middle East, and a conflict could disrupt the global flow of oil and send prices soaring.
Brent crude, the international standard, rose 3.1% to $73.04 a barrel.
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