Nasdaq and S&P 500 Snap Two-Week Win Streak as AI Concerns Weigh on Tech Stocks

TLDR

The Nasdaq fell 0.2% on Friday, ending a five-day losing streak, while the S&P 500 dropped slightly, both posting weekly losses of over 4% and nearly 2% respectively. A New York Times report suggesting OpenAI may delay its IPO until 2027 added pressure to tech stocks. Semiconductor stocks led the selloff, driven by worries over rising memory and storage costs after Apple raised MacBook and iPad prices. Federal Reserve rate hike fears grew after a hot May Personal Consumption Expenditures reading kept the possibility of tighter monetary policy alive. The Dow Jones held up better than its peers, posting a small weekly gain of under 1%, helped by its lower exposure to tech.

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US stocks had a rough week, with tech stocks at the center of the storm. The Nasdaq Composite fell for a fifth straight day on Friday, closing down 0.2%. The S&P 500 slipped slightly. Both indexes ended the week deep in the red.

Nasdaq 100 Sep 26 (NQ=F)

The Dow Jones Industrial Average dropped just 56 points, or 0.1%, on Friday. It managed to close the week in positive territory, up less than 1%. The Dow’s smaller tech exposure helped shield it from the worst of the selling.

AI Concerns Drive the Selloff

Investors have grown increasingly cautious about the artificial intelligence trade. Multiple negative headlines hit the sector this week, from concerns about token costs and free cash flow, to growing competition from lower-cost AI models and China.

A report from the New York Times added fuel to the fire. The paper said OpenAI may push back its highly anticipated IPO from 2026 to 2027. The news weighed on sentiment across the tech sector.

Mizuho analyst Daniel O’Regan summed up the mood. “Feels like every time I open Bloomberg or the WSJ there’s another negative AI headline,” he wrote. He added that the steady flow of bad news is likely to keep rattling retail investors.

Semiconductor stocks were hit particularly hard. Apple recently raised prices on its MacBooks and iPads, pointing to higher memory and storage costs. Chipmaker Micron reported strong earnings but also signaled the cost squeeze will continue.

Inflation Data Keeps Rate Hike on the Table

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures index, came in hot for May. That reading kept alive the possibility of a Fed rate hike this year, which added another layer of pressure on growth and tech stocks.

Higher rates are generally bad news for tech companies, which are valued heavily on future earnings. Any suggestion that borrowing costs could rise tends to hit those stocks harder than others.

Not all the signals were negative, however. Market breadth remained healthy. Nearly two-thirds of S&P 500 stocks were still trading above their 200-day moving average at the close of the week.

David Donabedian, senior investment strategist at CIBC Private Wealth, described the week’s moves as a reset rather than a breakdown. He noted that sectors like health care, real estate, and consumer staples held up well, while industrials and tech bore the brunt.

Oil prices also fell on the week. Brent crude dropped to around $72 a barrel and West Texas Intermediate traded near $69. Tanker traffic continued in the Strait of Hormuz despite an attack on a container ship, easing some supply fears. The US and Iran agreed to a 60-day ceasefire, though tensions in the region remain.

Looking ahead, Wall Street faces a holiday-shortened week. The June nonfarm payrolls report is due Thursday and will be closely watched for more clues on where the economy and interest rates are heading.

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