Wall Street low end; Fears of an AI bubble and inflation drive investors away

The S&P 500 and Nasdaq fell more than 1% on Friday as investors shunned technology for other sectors as Broadcom and Oracle fueled concerns about an AI bubble and U.S. Treasury yields rose after some policymakers spoke out against easing monetary policy. Treasury yields rose after a group of Federal Reserve officials who voted against cutting the central bank’s interest rates this week expressed concern that inflation remains too high to warrant lower borrowing costs.

Broadcom shares fell 11.4% after the chipmaker warned of thinner future margins, sparking fresh concerns about the profitability of increased AI investments. Oracle fell 4.5%, off a peak of around 11% on Thursday, following the cloud software company’s weak financial forecast. Oracle shares were also under pressure on Friday after ChatGPT maker denied a Bloomberg report that its data centers for OpenAI were experiencing delays.

It didn’t help that the S&P 500 and Dow hit record closing highs on Thursday and investors were awaiting key labor market and inflation data next week, according to Ameriprise chief market strategist Anthony Saglimben.

“It’s not surprising that the market is selling off today after a couple of solid weeks,” Saglimben said, noting that the record close was lower, and that “with some disruption in the AI ​​theme right now, investors are looking at some more defensive areas today.” Labor Department 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 investors and policymakers were starved of official data releases following the October government shutdown. “The market is probably a little cautious of those big numbers going forward next week,” the strategist said.

The Nasdaq Composite fell 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. For the 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%, to 48,458.05 but managed to post a weekly gain of 1.05%.

Broadcom was the biggest drag on the S&P 500 on the day, and heavyweight AI chip leader Nvidia, down 3.3%, was the next biggest weight. In sympathy, every share of the Philadelphia Semiconductor Index lost ground for its weakest session since October 10, with the index sinking 5.1%. Other companies that benefited from AI bets but reversed on Friday included SanDisk, which fell 14.7% and was the S&P 500’s largest percentage gainer. Investors also fled AI infrastructure companies, with Corewave losing 10.1% and Oklo 15.1%.

Six of the 11 S&P 500 industry sectors closed lower, led by heavyweight tech stocks, which fell 2.9% for its deepest daily loss since Oct. 10. Defensive consumer staples led the advancers with a gain of 0.9%. Also on the bright side, shares of Lululemon Athletica rose 9.6% after the apparel maker raised its annual profit forecast and CEO Calvin McDonald is leaving the company. But Costco Wholesale shares ended the day virtually unchanged after it beat Wall Street estimates for first-quarter revenue and profit as customers shopped its stores for affordable essentials and niceties ahead of the crucial holiday season.

Declining issues outnumbered advancers by a 2.23-to-1 ratio on the NYSE. On the Nasdaq, 1,419 stocks advanced and 3,315 declined as decliners outnumbered 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 hit 136 new highs and 98 new lows.

On US exchanges, 18.08 billion shares changed hands, compared to an average of 17.25 billion over the past 20 sessions.