Wall Street extended its decline on Friday as a pullback on stocks associated with the AI boom, which has driven many of the gains so far this year, morphed into a larger risk-off sentiment. Bay Street ended lower as well, though gains in energy companies kept declines in check.
Semiconductor shares, which have led the broader market’s move in recent sessions, initially led the selloff, which broadened as the session progressed.
All three major U.S. stock indexes closed lower on the day and posted weekly losses.
The Philadelphia SE Semiconductor Index logged its steepest weekly loss in over a year, and has tumbled over 18% so far in July. Even so, the index remains up nearly 65% year-to-date, compared with the S&P 500’s nearly 9% gain over the same time frame.
The SOX closed 20.2% below its June 22 record closing high, confirming the index entered a bear market on that date. Some investors in the artificial intelligence space have begun positioning for a slowdown in the nearly trillion-dollar spending boom, with some active managers already scaling back their exposure, according to a Reuters analysis.
“It’s like the market has chip fatigue,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “Chip stocks are down three of the last four weeks, and it’s the same worries, the same concerns; those stocks got way ahead of themselves, and now they’re coming back to Earth.”
Among the Magnificent Seven group of AI-related megacaps, all but Apple dipped, with Meta and Alphabet suffering the worst of it, down 2.7% and 3.2%, respectively.
The Dow Jones Industrial Average fell 406.55 points, or 0.77%, to 52,146.42, the S&P 500 lost 76.08 points, or 1.01%, to 7,457.69 and the Nasdaq Composite lost 361.70 points, or 1.40%, to 25,520.24. Among the major sectors of the S&P 500, communication services and consumer discretionary fell the most, while energy stocks were the sole gainers, benefiting from spiking crude prices amid signs of escalating hostilities in the Iran war.
Second-quarter earnings season is still in its early days, with 49 of the companies in the S&P 500 having reported. Of those, 90% have delivered better-than-expected results, according to LSEG.
Analysts now see year-on-year S&P 500 earnings growth of 26.0%, in aggregate, up from the 19.2% expectations as of April 1, per LSEG.
“It’s early in earnings season, but we’re off to a tremendous start,” Detrick added. “Over the next several weeks, we’re going to get a lot more sectors and industries reporting. But so far, the banks have really started us off on the right foot.” Netflix tumbled 7.3% after the company’s weaker-than-expected earnings forecast, raising doubts about the sustainability of the content growth momentum.
Uber Technologies dropped 2.1% after the rideshare app announced it would acquire Germany’s Delivery Hero in a deal worth nearly $15 billion.
Intuitive Surgical shares slid 14.2% after the medical device maker kept its da Vinci procedure growth forecast unchanged and warned insurance-plan changes may be delaying patient care.
On the economic front, U.S. consumer sentiment increased to a five-month high in July, but single-family housing starts and building permits dipped, and industrial output increased by a meager 0.1%.
The S&P/TSX Composite Index ended down 76.30 points, or 0.2%, at 35,263.85, extending its pullback from a record closing high on Wednesday. For the week, the index was down 0.1%, after three straight weekly gains.
The TSX’s technology sector fell 1.1%, with shares of e-commerce company Shopify Inc down 1.4%. The materials group, which includes metal mining shares, lost 0.5% as copper prices fell. Consumer discretionary was down 0.9% and heavily weighted financials ended 0.5% lower.
Three of the 10 major sectors ended higher, including energy, which added 1.9%.
U.S. crude oil futures settled 4.5% higher at US$82.49 a barrel after the U.S. and Iran stepped up attacks across the Gulf.
Declining issues outnumbered advancers by a 1.94-to-1 ratio on the New York Stock Exchange. There were 258 new highs and 180 new lows on the NYSE.
On the Nasdaq, 1,717 stocks rose and 3,019 fell as declining issues outnumbered advancers by a 1.76-to-1 ratio.
The S&P 500 posted 48 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 75 new highs and 190 new lows.
Volume on U.S. exchanges was 17.55 billion shares, compared with the 20.87 billion average for the full session over the last 20 trading days.
- Reuters, Globe staff