Wall Street ended lower. AI bubble and fear of inflation keep investors away

[BENGALURU] The S&P 500 and Nasdaq closed more than 1% lower on Friday (Dec. 12) as investors moved money out of technology and into other sectors, as rising U.S. Treasury yields added pressure as Broadcom and Oracle stoked concerns about an artificial intelligence (AI) bubble and some policymakers expressed opposition to monetary easing.

Treasury yields rose after a group of Fed officials who voted against the central bank's interest rate cuts this week expressed concerns that inflation was too high to justify lower borrowing costs.

Broadcom shares fell 11.4% after the chipmaker warned of shrinking future profit margins, raising fresh concerns about the profitability of soaring AI investments.

Oracle fell 4.5%, on top of Thursday's drop of about 11% following the cloud software company's weak financial outlook. Oracle stock was under pressure on Friday even after the company denied a Bloomberg report that ChatGPT maker OpenAI's data centers were delayed.

It also didn't help that the S&P 500 and Dow Jones Industrial Average closed at new highs on Thursday, and that investors were focused on key labor market and inflation data to be released next week, said Anthony Saglimbene, chief market strategist at Ameriprise.

“It's not surprising to see the market sell off today after a pretty strong couple of weeks,” Saglimbene said, following the record close, adding, “There's some confusion on the AI ​​theme right now, so investors today are looking at some of the more defensive sectors.”

The Labor Department's report on nonfarm payrolls, consumer inflation and retail sales is expected to be released next week and could provide greater insight into the health of the economy after the October government shutdown left investors and policymakers hungry for official statistics. “The market is probably a little cautious about heading into these big numbers next week,” the strategist said.

The Nasdaq Composite Index fell 398.69 points, or 1.69%, to 23,195.17, and the S&P 500 Index fell 73.59 points, or 1.07%, to 6,827.41. For the week, the S&P 500 fell 0.63% and the Nasdaq fell 1.62%.

The Dow Jones Industrial Average fell 245.96 points, or 0.51%, to $48,458.05 on the day, but was up 1.05% for the week.

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Broadcom was the biggest drag on the S&P 500 index on the day, followed by AI chip giant Nvidia, which fell 3.3%. Sympathetically, stocks in the Philadelphia Semiconductor Index stalled, with the index falling 5.1%, its lowest since October 10th.

Other companies that have benefited from AI investments that reversed on Friday included SanDisk, which fell 14.7%, the biggest decliner in the S&P 500. Investors also fled AI infrastructure companies, with CoreWeave down 10.1% and Oklo down 15.1%.

Six of the 11 industries that make up the S&P 500 index closed lower. Leading tech stocks fell 2.9%, their biggest decline since October 10th.

Defensive consumer staples led the gainers, rising 0.9%. Also on the bright side: Lululemon Athletica stock rose 9.6% after the company raised its full-year profit forecast and announced that CEO Calvin McDonald would step down. But Costco Wholesale stock ended the day virtually unchanged, even though first-quarter sales and profits beat Wall Street expectations, as consumers stocked up on affordable essentials and nice-to-have items at the company's stores ahead of the important holiday season.

Declining issues outnumbered advancing issues on the New York Stock Exchange by a ratio of 2.23 to 1. Declining issues outnumbered advancing issues on the Nasdaq by a 2.34-to-1 ratio, with 1,419 advancing issues and 3,315 declining issues.

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

On US exchanges, 18.08 billion shares were traded, compared to the average of 17.25 billion shares over the past 20 sessions. Reuters