NEW YORK: Wall Street extended its decline on Friday as a pullback on stocks associated with the AI boom, which has driven much of the gains so far this year, morphed into a larger risk-off sentiment.
Semiconductor stocks, which have led the broader market’s move in recent sessions, initially led the selloff, which broadened as the session progressed.
All three indexes were on course to post weekly losses.
The Philadelphia SE Semiconductor Index was last down 1.0 percent, and remained on track for its steepest weekly loss since early April, and has tumbled about 17 percent so far in July. Even so, the index remains up 63.2 percent year-to-date, compared with the S&P 500’s 10 percent gain over the same time frame. 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.
“The story is over for chips because the story is not over for AI,” said Sam Stovall, chief investment strategist at CFRA Research in New York. “(Chips) have come so far, so over an extended period, it’s like an army that got too far ahead of its supply lines and has to retreat and let the fundamentals catch up.”
Every member of the Magnificent Seven group of AI-related megacaps dipped, with Meta and Alphabet suffering the worst of it, down 2.7 percent and 3.2 percent, respectively.
The Dow Jones Industrial Average fell 290.49 points, or 0.56 percent, to 52,260.46, the S&P 500 lost 64.87 points, or 0.86 percent, to 7,468.83 and the Nasdaq Composite lost 308.67 points, or 1.19 percent, to 25,573.27. Among the major sectors of the S&P 500, communication services and technology were down the most, while energy stocks were the sole gainers, benefitting from spiking crude prices amid signs of escalating hostilities in the Iran war.
War equipment makers were also clear outperformers.
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 percent have delivered better-than-expected results, according to LSEG.
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