Wall Street ends lower; fears of AI bubble and inflation send investors away

[BENGALURU] The S&P 500 and the Nasdaq closed down more than 1 per cent on Friday (Dec 12) with investors leaving technology for other sectors as Broadcom and Oracle fuelled concerns about an artificial intelligence (AI) bubble and rising US 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 interest rate cut this week voiced worries that inflation remains too high to warrant lower borrowing costs.

Broadcom shares tumbled 11.4 per cent after the chipmaker warned of slimmer future margins, causing renewed concerns about the profitability of surging AI investments.

Oracle fell 4.5 per cent on top of Thursday’s almost 11 per cent plunge following the cloud software company’s weak financial forecast. Oracle shares were under pressure on Friday even after it denied a Bloomberg report that its data centres for ChatGPT maker OpenAI were being delayed.

It did not help that the S&P 500 and the Dow had notched record closing highs on Thursday and that investors were looking ahead to important labour market and inflation data due out in the week ahead, according to Anthony Saglimbene, chief market strategist at Ameriprise.

“It’s not surprising that the market’s selling off today after a pretty solid couple weeks,” said Saglimbene, adding that following record closes, and with “some disruption in the AI theme right now, investors today are looking at some of the more defensive sectors”.

The Labor Department’s reports on nonfarm payrolls, consumer inflation and retail sales data are due next week and may offer greater insight into the economy’s health after the October government shutdown starved investors and policymakers of official data releases. “The market is probably a little bit cautious on heading into those big numbers next week,” said the strategist.

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

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

Broadcom was the biggest drag on the S&P 500 on the day and heavyweight AI chip leader Nvidia, down 3.3 per cent, was the next biggest weight. In sympathy, every stock in the Philadelphia semiconductor index lost ground with the index sinking 5.1 per cent, for its weakest session since Oct 10.

Other companies that have benefited from AI bets but went into reverse on Friday included SanDisk, which fell 14.7 per cent and was the S&P 500’s biggest percentage decliner. Investors also fled AI infrastructure companies with CoreWeave off 10.1 per cent and Oklo, losing 15.1 per cent.

Six of the 11 S&P 500 industry sectors closed lower, led by heavyweight tech stocks, which dropped 2.9 per cent for its deepest daily loss since Oct 10.

Defensive consumer staples led the advancers with a 0.9 per cent gain. Also on the bright side, Lululemon Athletica shares rallied 9.6 per cent after the apparel maker raised its annual profit forecast and said that CEO Calvin McDonald was leaving the company. But Costco Wholesale shares ended the day virtually unchanged even after it beat Wall Street estimates for first-quarter revenue and profit as consumers snapped up affordable essentials and nice-to-have items at its stores 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 rose and 3,315 fell as declining issues outnumbered advancers by a 2.34-to-1 ratio.

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

On US exchanges, 18.08 billion shares changed hands compared with the 17.25 billion average for the last 20 sessions. REUTERS