Wall Street indexes fell sharply on Thursday, with the tech-heavy Nasdaq down 2%, as investors intensified their sell-off of technology stocks and fled transportation stocks on concerns about artificial intelligence disruption.
The S&P 500 and the Dow Jones fell more than 1% as investors also digested the latest jobs data and waited for the January inflation report, due Friday.
After starting the day higher, the indices began selling off in morning trading as investors fled riskier sectors and into more defensive investments such as utilities, consumer staples and real estate.
At a time when investors were stressed about the impact AI would have on the competition, a less-than-impressive quarterly update from Cisco Systems helped sour the market for tech stocks in general. Trucking companies also became mired in concerns about AI disruption.
“The broader story within the market is which sectors and industries can increase productivity through AI investments, and on the other hand, which industries will be disrupted by AI,” said Jack Herr, primary investment analyst at GuideStone Funds.
“We see this as a ‘prove it’ year for AI. We need to start seeing some return on our investments.”
The Dow Jones Industrial Average fell 669.42 points, or 1.34%, to 49,451.98, the S&P 500 lost 108.71 points, or 1.57%, to 6,832.76 and the Nasdaq Composite lost 469.32 points, or 2.03%, to 22,597.15.
Investors await the inflation report and parse unemployment data
Wednesday’s stronger-than-expected jobs report fueled concerns that the Federal Reserve would now be less likely to cut interest rates. These concerns were on investors’ minds as they braced for the January Consumer Price Index report, due before the next session.
Thursday’s data showed that the number of Americans filing new claims for unemployment benefits fell less than expected last week, likely as disruptions from winter storms continued.
“We are in the middle ground between two major economic macro reports,” said Marc Dizard, Chief Investment Officer at Huntington Wealth Management.
Shares of Cisco closed 12.3% lower for their biggest single-day selloff since May 2022, after the networking equipment supplier posted quarterly adjusted gross margin below estimates.
Cisco was the fifth-biggest drag on the S&P 500, and Dizard said its selloff likely encouraged investors to exit highly liquid megacaps like Apple, Nvidia, Broadcom and Amazon.com.
Earnings season has revived investor concerns about ambitious capital spending this year, with Amazon, Google, Meta and Microsoft collectively expected to spend around $650 billion in the race for AI dominance.
The S&P 500 software index fell 1.7% for its second straight loss, largely wiping out the index’s recovery from last week’s blows. The biggest percentage decline during the session was AppLovin, which fell 19.7% after reporting fourth-quarter results. Shares in the marketing platform are under pressure this year due to intense competition.
The economically sensitive Dow Jones Transport Average fell 4%, while Landstar fell 15.6%, while CH Robinson lost 14.5% and Expeditors International lost 13.2%.
CNBC previously reported that a new tool announced by AI company Algorhythm Holdings has made trucking companies the latest target of investor concerns about AI disruption. Algorithm shares ended the session nearly 30% higher.
“There was weakness in the jobs report on trucking hiring,” said Scott Helfstein, head of investment strategy at Global “Lay that on top of the potential disruption from automation and the risks of weaker demand.”
Although the Philadelphia SE Semiconductor index has outperformed software stocks recently, it finished 2.5% lower on Thursday.
Equinix shares rose 10.4% after the largest data center operator forecast full-year revenue above estimates on Wednesday, betting on strong AI-related demand. It was the biggest gainer in the S&P 500 real estate index.
Personal computer makers fell after China’s Lenovo warned of pressure on shipments due to a shortage of memory chips, sending shares of HP down 4.5% and Dell Technologies down 9%.
There were 748 new highs and 229 new lows on the NYSE, for a 2.17-to-1 ratio.
On the Nasdaq, 1,305 stocks rose and 3,581 fell as decliners outpaced advancers by a 2.74-to-1 ratio. The S&P 500 posted 99 new highs over the past 52 weeks and 32 new lows.
On US stock exchanges, 22.45 billion shares changed hands, compared to the average of 20.78 billion over the last twenty sessions.
(Reporting by Sinéad Carew, Twesha Dikshit and Purvi Agarwal in Bengaluru; Editing by Shilpi Majumdar, Pooja Desai, Rod Nickel)
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