Wall Street experienced a notable decline on Friday, driven largely by a significant downturn in artificial intelligence (AI) stocks. The S&P 500 fell by 1.1 per cent, marking its worst day in three weeks, while the Nasdaq Composite dropped 1.7 per cent. The Dow Jones Industrial Average also retreated, losing 245 points, or 0.5 per cent, after reaching a record high just the day before. This downward trend is expected to impact the Australian share market, with futures indicating a potential drop of 51 points, or 0.6 per cent, at the opening.
The decline was primarily influenced by a steep fall in shares of Broadcom, which plummeted 11.4 per cent despite reporting a stronger-than-expected profit for the latest quarter. CEO Hock Tan highlighted a remarkable 74 per cent growth in AI semiconductor revenue, yet investor concerns lingered regarding Broadcom’s financial forecasts. Questions arose about the company’s ability to generate sufficient profit from each USD 1 of revenue, contributing to a loss of momentum after a substantial 75.3 per cent increase in its stock price this year.
Adding to the concerns, Oracle experienced a nearly 11 per cent drop in its stock price, even after posting a quarterly profit that exceeded analysts’ expectations. Investors are questioning whether Oracle’s substantial investments in AI technology will yield adequate returns, alongside uncertainties regarding how the company plans to finance these expenditures. Such doubts are prevalent across the broader AI sector, despite significant capital continuing to flow in.
On Friday, Broadcom was the largest detractor from the S&P 500, closely followed by Nvidia, which fell 3.3 per cent, and Oracle, which dropped another 4.5 per cent. The bond market also exerted pressure on equities, with the yield on the 10-year Treasury note rising to 4.18 per cent from 4.14 per cent. This increase in yields can discourage investors from paying high prices for stocks, particularly in an environment where many stocks are perceived as already expensive.
The fluctuations among AI stocks signal a turbulent adjustment following a period of rapid growth. The Dow Jones Industrial Average, which is less exposed to technology stocks, saw a gain of 1 per cent over the past week, contrasting sharply with the Nasdaq Composite’s decline of 1.6 per cent. Despite Friday’s rise in yields, investor sentiment towards interest rates has improved. Earlier in the week, the Federal Reserve implemented its third interest rate cut of the year and hinted at the possibility of another reduction in 2026.
“The Fed’s chair, Jerome Powell, indicated that interest rates may be on hold for the time being,”
providing some reassurance to investors. Lower interest rates typically boost economic activity and can lead to higher asset prices, though they may also intensify inflationary pressures.
Consumer-dependent companies displayed resilience on Friday, with two out of every five stocks in the S&P 500 recording gains. Easing oil prices could alleviate consumer expenses, and optimism surrounding more favorable interest rates may support spending. Notable performers included Chipotle Mexican Grill, which rose 3.6 per cent, McDonald’s at 2.3 per cent, and Norwegian Cruise Line at 1.5 per cent. The most significant gain in the S&P 500 was observed in Lululemon Athletica, which surged 9.6 per cent after announcing better-than-expected profits and revenues for the three months ending November 2, 2023.
In summary, the S&P 500 concluded the day down 73.59 points at 6,827.41, while the Dow Jones Industrial Average fell by 245.96 points to 48,458.05, and the Nasdaq Composite decreased by 398.69 points, closing at 23,195.17. Internationally, European markets experienced modest declines following a stronger finish in Asia, with stocks in Hong Kong and Tokyo rising by 1.7 per cent and 1.4 per cent, respectively.
