S&P 500 Ends Week Lower Amid Concerns Over AI Stocks
A Deep Dive into Recent Market Movements
The S&P 500 experienced a decline on Friday, pulling back from its record highs as investors reassessed key inflation data and the performance of major AI-related stocks. Dell Technologies, Nvidia, and others in the sector faced notable losses, with Dell dropping nearly 9% due to heightened manufacturing costs and stiff competition.
Market Reactions to Inflation Data
Investors were reacting to the latest inflation reports, which indicated that tariffs are beginning to affect prices. This raised caution among traders, especially regarding tech stocks deeply entwined with AI developments.
Dell Technologies: A Case Study
Dell realized one of the steepest declines in the S&P 500, with its stock plummeting nearly 9%. This downturn occurred despite an optimistic demand forecast for AI infrastructure, overshadowed by rising production costs for AI-optimized servers.
Nvidia’s Ongoing Struggles
Nvidia also faced challenges, slipping 3.4% for the third consecutive day. While the company’s latest quarterly report confirmed robust spending on AI infrastructure, it did not meet the lofty expectations of investors, amplifying concerns.
Investor Sentiment
“Today is just weakness in the top of the market, in tech,” remarked Zachary Hill, head of portfolio management at Horizon Investments in Charlotte. He noted that such concerns are not unprecedented, stating, “This is not the first time that we’ve had some worries about over-investment in AI.”
Consumer Spending Trends
On a brighter note, U.S. consumer spending saw the largest uptick in four months this July, and services inflation demonstrated an increase. However, economists believe this strength in domestic demand may not be enough to prevent the Federal Reserve from cutting interest rates next month.
Impact of Tariffs on Prices
The Commerce Department’s report revealed mild price pressures stemming from tariffs on imports. Additionally, a tariff exemption on package imports valued under $800 ended on Friday, further complicating costs for businesses and consumers alike.
Anticipated Rate Cuts from the Federal Reserve
Traders widely expect the Federal Reserve to cut interest rates by 25 basis points in its September meeting. Jim Smigiel, chief investment officer at SEI, indicated that even with a potential rise in inflation, the Fed may overlook it, attributing it to being tariff-related and temporary.
Market Outlook Post-Labor Day
The U.S. stock market will be closed for Labor Day, but expectations of interest rate cuts have contributed to the S&P 500 and Dow achieving their fourth consecutive month of gains, with the tech-heavy Nasdaq notching its fifth.
Alibaba’s Strong Performance
Amidst the declines, U.S. shares of Alibaba surged 13%, helped by stronger-than-expected quarterly growth from its cloud computing segment. Notably, a recent Wall Street Journal report suggested Alibaba’s development of a new AI chip.
S&P 500 Closing Figures
The S&P 500 ended the session down 0.64%, closing at 6,460.26 points after reaching a record high the previous day. The Nasdaq fell 1.15% to 21,455.55, while the Dow Jones Industrial Average experienced a more modest decline of 0.20% to 45,544.88.
Sector Performance Analysis
Of the 11 S&P 500 sector indexes, six saw gains, led by the healthcare sector, which rose 0.73%. Conversely, the technology sector fell 1.63%.
Small Companies Index Trends
The Russell 2000 index, which reflects smaller companies, dipped 0.5% but logged a 7% gain for August.
Monthly Recap of Indices
For the month of August, the S&P 500 reported a 1.9% increase, the Dow rose by 3.2%, and the Nasdaq added 1.6%.
Future Interest Rate Insights
Fed Governor Christopher Waller expressed a desire to cut rates in September, aligning with calls from President Trump for lower borrowing costs. Meanwhile, a court hearing on Trump’s effort to fire Federal Reserve Governor Lisa Cook concluded without an immediate ruling, ensuring her tenure remains intact for now.
Chipmaker Setbacks
In other news, chipmaker Marvell experienced a nearly 19% drop after forecasting quarterly revenue below expectations, while Caterpillar, a bellwether for the global economy, fell 3.65% due to anticipated higher tariff-related costs for 2025.
Trading Activity Summary
Advancing issues outnumbered declining ones in the S&P 500 by a ratio of 1.3-to-one. The S&P 500 logged 21 new highs and zero new lows; the Nasdaq saw 76 new highs and 67 new lows.
Market Volume Insights
Trading volume across U.S. exchanges was relatively muted, with 14.8 billion shares exchanged compared to the average of 16.4 billion over the preceding 20 sessions.
