Wall Street is wrapping up a turbulent week, as investors rotated out of AI and semiconductor stocks, while upbeat bank earnings helped cushion the Dow Jones Industrial Average (DJI). Concerns over rising competition and valuations sparked a global chip-sector selloff, sending South Korea's Kospi sharply lower. Heightened oil prices and renewed geopolitical tensions added to the broad market pressure.
Hotter-than-expected inflation data fueled concerns over additional Federal Reserve interest rate hikes, sending Treasury yields higher and pushing the Nasdaq Composite Index (IXIC) to its worst daily percentage loss since July on Wednesday. Stocks staged a sharp rebound Thursday, with the Dow surging 556 points despite another round of elevated inflation data. However, the rotation out of AI infrastructure intensified Friday, leaving the Nasdaq and S&P 500 Index (SPX) on track for weekly losses at midday. The Dow, meanwhile, was the only major index headed for a weekly gain.
Earnings Season Gets Underway
Third-quarter earnings season kicked off with a wave of upbeat results from major financial institutions. Goldman Sachs (GS) rallied following better-than-expected results, while UnitedHealth Group (UNH) climbed after topping quarterly expectations and raising its full-year outlook. Travelers (TRV) was little changed despite strong third-quarter results, while Alcoa (AA) enjoyed a post-earnings pop amid robust alumina demand.
AI Stocks Take a Hit
AI and semiconductor stocks faced mounting pressure this week, as concerns over spending, debt and competition sparked a rotation away from the once-dominant sector. CoreWeave (CRWV) saw volatility amid worries over AI-related debt, while Micron Technology (MU) pulled back toward a key technical support level. The iShares Semiconductor ETF (SOXX) logged its eighth consecutive loss Thursday, marking its longest losing streak since September 2015.
Meanwhile, ON Semiconductor (ON) and Cloudflare (NET) both flashed historically bullish signals following pullbacks. IREN (IREN) rallied earlier in the week following reports of an AI deal with Anthropic, highlighting the divergence within the sector.
Looking Ahead
Looking ahead, earnings season picks up steam next week, with quarterly reports expected from Tesla (TSLA), Netflix (NFLX), Meta Platforms (META), and several other major companies. Investors will also be watching manufacturing and services purchasing managers' index (PMI) data for fresh clues about the economy, particularly after this week's hotter-than-expected inflation readings.
In the meantime, Schaeffer's Senior Quantitative Analyst Rocky White examines the historical implications of recent small-cap weakness, while Senior V.P. of Research Todd Salamone explores three reasons October could still favor S&P 500 bulls.
