Wall Street ends lower; Fears of an AI bubble and inflation are driving investors away

The S&P 500 and Nasdaq closed more than 1% lower on Friday, with investors leaving tech for other sectors as Broadcom and Oracle fueled concerns about an AI bubble and rising U.S. Treasury yields added pressure after some policymakers spoke out against easing monetary policy. Treasury yields rose after a group of Federal Reserve officials, who voted against the central bank’s rate cut this week, expressed concerns that inflation remains too high to justify lower borrowing costs. Shares of Broadcom tumbled 11.4% after the chipmaker warned of tighter future margins, sparking renewed concerns about the profitability of rising AI investments. Oracle fell 4.5% on top of Thursday’s nearly 11% drop after the cloud software company’s weak financial forecasts. Shares of Oracle were under pressure on Friday even after it denied a Bloomberg report that its data centers for ChatGPT maker OpenAI were being delayed.

Anthony Saglimbene, chief market strategist at Ameriprise, said it didn’t help that the S&P 500 and the Dow hit record highs on Thursday and that investors were looking forward to key labor market and inflation data coming out in the coming week.“It’s not surprising that the market is selling off today after a pretty solid couple of weeks,” says Saglimbene, adding that the next record close is closing, and with “some disruption in the AI ​​theme at the moment, investors are looking at some of the more defensive sectors today.” The Labor Department’s reports on nonfarm payrolls, consumer inflation and retail sales data are due next week and could provide more insight into the health of the economy after the October government shutdown that starved investors and policymakers of official data. “The market is probably a bit cautious when it comes to these big numbers next week,” the strategist said.

The Nasdaq Composite lost 398.69 points, or 1.69%, to 23,195.17, while the S&P 500 lost 73.59 points, or 1.07%, to 6,827.41. This week, the S&P 500 fell 0.63%, while the Nasdaq fell 1.62%.

The Dow Jones Industrial Average fell 245.96 points, or 0.51% on the day, to 48,458.05, but managed a weekly gain of 1.05%.

Broadcom had the biggest drag on the S&P 500 that day, while heavyweight AI chip leader Nvidia, down 3.3%, was the second-biggest weight. In sympathy, every stock in the Philadelphia Semiconductor Index lost ground, with the index down 5.1% for its weakest session since October 10. Other companies that have benefited from AI bets but moved in the opposite direction on Friday include SanDisk, which fell 14.7% and was the S&P 500’s biggest percentage decline. Investors also fled AI infrastructure companies, with CoreWeave losing 10.1% and Oklo losing 15.1%. Six of the S&P 500’s 11 industrial sectors closed lower, led by heavyweight technology stocks, which fell 2.9% for the biggest daily loss since Oct. 10. Defensive consumer staples led the gainers with a gain of 0.9%. Also on the upside, shares of Lululemon Athletica rose 9.6% after the apparel manufacturer raised its annual profit forecast and said CEO Calvin McDonald would be leaving the company. But Costco Wholesale shares ended the day virtually unchanged, even after beating Wall Street expectations for first-quarter sales and profit, as consumers shopped for affordable basics and fun items in stores ahead of the crucial holiday season.

On the NYSE, decliners outnumbered advancers by a ratio of 2.23 to 1. On the Nasdaq, 1,419 stocks rose and 3,315 fell as decliners outpaced advancers by a 2.34-to-1 ratio.

The S&P 500 posted 32 new 52-week highs and 5 new lows, while the Nasdaq Composite posted 136 new highs and 98 new lows.

On US stock exchanges, 18.08 billion shares changed hands, compared to the average of 17.25 billion over the past twenty sessions.