Wall Street closed lower on Wednesday for the second day as market participants continued to book profits, particularly of technology stocks. The Fed Chairman’s comment also dented investors sentiment. Investors appeared concerned about the highly overstretched valuation of AI-focused tech giants. All three major stock indexes ended in negative territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.4% or 171.50 points to close at 46,121.28. Notably, 11 components of the 30-stock index ended in positive territory, while 19 finished in negative territory. At the intraday high, the blue-chip index was up 160.29 points.
The tech-heavy Nasdaq Composite finished at 22,497.86, sliding 0.3% driven by the weak performance of technology bigwigs. At intraday high, the tech-laden index was up 84 points and at the intraday low, it was down 176.50 points.
The S&P 500 declined 0.2% to finish at 6,637.97. At the intraday high, the benchmark index was up 15.74 points and at intraday low, it was down 35.16 points. Out of the 11 broad sectors of the broad-market index, seven ended in negative territory, while four were in positive territory.
The Energy Select Sector SPDR (XLE) advanced 1.3%. On the other hand, the Materials Select Sector SPDR (XLB) and the Real Estate Select Sector SPDR (XLRE) 1.2% and 1%, respectively.
The fear gauge, the CBOE Volatility Index (VIX) was down 2.8% to 16.18. A total of 18.04 billion shares were traded on Wednesday, higher than the last 20-session average of 17.75 billion. Decliners outnumbered advancers on the NYSE by a 1.88-to-1 ratio. On the Nasdaq, a 1.35-to-1 ratio favored declining issues.
Fed Chair’s Warnings
On Sep 23, in his speech in Providence, Rhode Island, Fed Chairman Jerome Powell expressed concerns that asset prices, particularly risky equities, are highly overvalued now. CNBC reported that the Fed Chair was asked whether the central bank emphasized higher market prices.
In reply, Powell said, “We do look at overall financial conditions, and we ask ourselves whether our policies are affecting financial conditions in a way that is what we’re trying to achieve. But you’re right, by many measures, for example, equity prices are fairly highly valued.”
Concerns for AI Rally
The artificial intelligence (AI)-driven, astonishing bull run of 2023 and 2024 has continued into 2025, too. The AI frenzy looks rock solid as hyperscalers are increasingly opting for data center installations to support the massive growth of cloud computing.
Meanwhile, companies that have extensive application of AI in their final products have become multi-baggers in the past 33 months. Stock prices of some of these companies have skyrocketed 200-300% during this period.
Investors are concerned about the monetization of this massive investment by hyperscalers. Consequently, the AI rally faced a hurdle. The stock prices of NVIDIA Corp. NVDA, Oracle Corp. ORCL and Micron Technology Inc. MU fell 0.8%, 1.7% and 2.8%, respectively.
Micron Technology currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Economic Data
The Department of Commerce reported that new home sales in August came in at 800,000, beating the Zacks Consensus Estimate of 655,000. This marked the highest level since January 2022. The metric for July was revised upward to 664,000 from 642,000 reported earlier. Year over year, new home sales climbed 15.4% in August.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.6 million barrels sequentially for the week ended Sept.19.
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Micron Technology, Inc. (MU): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Oracle Corporation (ORCL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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