The US stock market ended lower on Thursday, with technology stocks leading the decline amid concerns over AI-related chipmakers and inflationary pressures.
The PHLX chip index saw a significant drop, highlighting the ongoing volatility in the sector that has been a major driver of Wall Street's gains in recent years. Investors are divided on the potential for AI to boost profits, with some worried about the long-term payoff of substantial investments in AI data centers.
Apple experienced a partial recovery after a selloff earlier in the week, following its decision to increase iPad and MacBook prices due to rising memory and storage chip costs. Meanwhile, Moderna's stock surged to its highest level since 2024 after an investor event showcasing its pipeline. US inflation rose above 4% in May, driven by the Iran war's impact on energy prices, raising the possibility of a Federal Reserve rate hike.
“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
Despite a sharp retreat in oil prices as Middle East tensions eased, Apple's price hikes indicate that inflation remains a concern, according to Art Hogan, chief market strategist at B. Riley Wealth. The S&P 500 lost 19.81 points, or 0.27%, to close at 7,337.68, while the Nasdaq Composite fell 121.72 points, or 0.48%, to 25,236.88. The Dow Jones Industrial Average dropped 125.78 points, or 0.23%, to 51,794.84.
The market was also affected by reports of OpenAI considering delaying its IPO until next year, which dampened risk sentiment related to AI stocks. SpaceX shares were mixed as passively managed index funds prepared to buy significant amounts of stock ahead of its inclusion in Russell indexes.
“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
Interest rate concerns persisted, with traders factoring in a 25 basis-point rate hike and a near 27% chance of another by year-end. A survey indicated a rebound in US consumer sentiment from record lows in June, though concerns about the high cost of living remain prevalent. ON Semiconductor's stock declined after announcing an all-stock acquisition of Synaptics valued at approximately $7 billion.
Background
The recent volatility in tech stocks, particularly those related to AI, comes amid broader concerns about inflation and interest rates. The tech sector has been a significant contributor to market gains in recent years, but questions about the sustainability of these gains and the impact of geopolitical tensions are causing investor unease.
As the market navigates these challenges, investors will be closely monitoring developments in the tech sector and inflation trends. The potential impact of further rate hikes and geopolitical tensions will also be key factors influencing market dynamics in the coming months.
