U.S. stock markets ended lower as tech stocks, particularly AI-related chipmakers, contributed to a decline in investor sentiment.
The PHLX chip index tumbled, highlighting recent volatility in the sector. Investors are divided on the impact of AI, with some optimistic about future profits, while others worry about the long-term payoff of AI data center investments.
Meanwhile, inflation concerns persist as Apple's price hikes on iPads and MacBooks reflect rising memory and storage chip costs. Moderna saw a surge, reaching its highest level since 2024, following an investor event showcasing its pipeline.
“It's too early to conclude that there's a major correction brewing in tech, but what I would say is that the questions around profitability and the capex story are certainly not going away.”
David Stubbs, Chief Investment Strategist at AlphaCore Wealth Advisory
U.S. inflation rose above 4% in May, driven by energy prices amid the Iran war, maintaining the possibility of a Fed rate hike. Preliminary data showed the S&P 500 lost 19.81 points, or 0.27%, to end at 7,337.68 points, while the Nasdaq Composite fell 121.72 points, or 0.48%, to 25,236.88. The Dow Jones Industrial Average declined 125.78 points, or 0.23%, to 51,794.84.
The potential delay of OpenAI's IPO also weighed on AI stock sentiment. Interest rate concerns remain, with traders pricing in a 25 basis-point rate hike and a near 27% chance of another by year-end. U.S. consumer sentiment rebounded in June, though concerns about the high cost of living persist. ON Semiconductor's acquisition of Synaptics in a $7 billion all-stock deal also impacted the market.
“We saw a similar dynamic during the pandemic, when supply chain disruptions limited access to semiconductors. Now, we're witnessing a comparable supply shock, this time driven by memory, which is creating renewed inflationary pressure.”
Art Hogan, Chief Market Strategist at B. Riley Wealth
Background
The tech sector has been a significant driver of Wall Street's gains in recent years, with AI-related stocks playing a crucial role. However, recent volatility and inflationary pressures have raised concerns about the sustainability of these gains.
Looking ahead, investors will closely monitor inflation trends and tech sector developments as potential indicators of market direction. The ongoing volatility in tech stocks and inflationary pressures will likely continue to influence market sentiment.
