The S&P 500 posted its biggest weekly drop since June as AI-linked stocks stumbled. Wall Street now watches quarterly results from Meta Platforms and other key players to see whether the AI rally holds.
Stumbles in the market-leading AI trade are set to test investor confidence in the rally in the coming week. Wall Street is focusing on quarterly results from key players including Meta Platforms. AI-linked stocks, central to the bull market that just marked its fourth anniversary, struggled in recent days, with sharp declines in semiconductor companies and tech hardware firms such as Dell Technologies.
S&P 500 ends only about 2% below its record
Dragged down by heavyweight tech and AI stocks, the S&P 500 posted its biggest weekly drop since June. Yet the benchmark was only about 2% below its record high set this month. Other sectors, including healthcare and consumer staples, posted solid gains on the week.
Chip stocks have cooled as well. The Philadelphia SE Semiconductor index has slumped about 12% this month, although it remained up 57% on the year, against a roughly 12% year-to-date gain for the S&P 500.
Worries also rippled through markets over the financing of the AI build-out. CoreWeave, an AI cloud company with about $50 billion in debt, saw its shares tumble this week. Separately, strategists at Deutsche Bank and RBC Capital Markets pulled back on their recommendations of the tech sector.
Meta kicks off hyperscaler results
The earnings season heats up next week. S&P 500 companies are expected to have increased earnings by more than 30% in the third quarter, according to LSEG IBES. Meta is one of five AI hyperscalers that combined are expected to raise capital spending to about $1.2 trillion next year, according to Goldman Sachs.
Investors want signs that the spending can pay off. Natixis Investment Managers Solutions strategist Garrett Melson described the mood: "This is very much an on-off switch type of market."
Lam Research and Texas Instruments report on Wednesday, and their results could offer broader indications of demand in the semiconductor industry. Rates also remain a front-burner issue. Hot inflation data this week boosted bets on another rate increase at the Fed's meeting at the end of October, though futures pricing suggested most investors expect the central bank to wait until December for a rate hike.
Source: Investing.com
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