Market Opens Mixed After a Turbulent Week
TREE NEWS reports: US equities opened mixed on Friday, capping a week defined by a sharp selloff in technology shares, a powerful rally in Treasuries, and hotter-than-expected inflation data. The Dow Jones Industrial Average rose 0.3%, the S&P 500 added 0.1%, while the Nasdaq 100 slipped 0.3%, as investors remained cautious amid fading momentum in the artificial intelligence trade, elevated energy prices, and lingering uncertainty over the Federal Reserve’s policy path.
Memory chip makers bore the brunt of the selling. SK Hynix fell about 4%, while Western Digital, SanDisk, and Micron Technology each dropped roughly 3%. Seagate Technology lost about 2%. CoreWeave, a prominent AI infrastructure player, tumbled 7.7%, underscoring the pressure on companies tied to the buildout of AI data centers.
Not all technology names were under pressure. Tesla rose about 1% after unveiling its long-awaited Roadster sports car. Apple also gained roughly 1% as pre-orders for its first foldable phone, the iPhone Duo, sold out instantly, with delivery dates already slipping into next year.
AI Trade Retreat Weighs on Tech
The dominant narrative this week has been a marked cooling in AI-related positioning. As concerns over the cost of AI infrastructure mount, capital has rotated out of the technology sector. The Nasdaq 100 has fallen 3% since Monday, with semiconductor stocks particularly vulnerable.
“The economy is still expanding, but households and highly leveraged companies are under pressure,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers. He argues this backdrop supports a constructive stance on government bonds while favoring a more selective approach to equities.
On AI specifically, Ielpo flagged the central question: whether AI investments can generate attractive returns at current financing costs. That doubt is the core logic behind this week’s valuation pressure on tech stocks.
Treasuries Reclaim Safe-Haven Status
Another key signal this week was the return of Treasuries’ safe-haven appeal. A Bloomberg strategist, it is notable that yields fell even as key economic data broadly beat expectations. The interpretation: the AI trade has grown large enough that fears of a meaningful downturn in it can override rate-hike expectations driven by inflationary supply shocks, reactivating safe-haven buying in bonds. This suggests the negative correlation between bonds and stocks has been at least partially restored.
Looking ahead, Ielpo sees oil prices as the critical variable, given their dual impact on inflation and household purchasing power. Brent crude continues to trade near $106 per barrel.
Fed Rhetoric Turns Hawkish, but Markets Stay Calm
Fed officials struck a broadly hawkish tone this week, with the hawkishness of Fed commentary reaching its highest level since 2023. Yet Friday’s market reaction was relatively muted.
Francisco Simón of Santander Asset Management characterized Chair Kevin Warsh’s remarks as “emphasizing discipline, not urgency,” with a core message of sustained focus on the inflation target rather than any inclination toward aggressive policy action. Warsh did not address near-term monetary policy specifically during an IMF annual meeting discussion, prompting traders to trim October rate-hike bets to about 15%, partially offsetting the rise in hike expectations after this week’s strong inflation data.
The 10-year Treasury yield rose 4 basis points on Friday but remains on track for its largest weekly decline since February. The dollar fell for a second consecutive day. Gold was roughly flat at $4,172 an ounce, while Brent crude slipped 0.7% to $105.20 and WTI fell 1% to $96.95.
Key Takeaways for Investors
- AI positioning is being repriced: The market is increasingly questioning whether AI capex can deliver adequate returns at current financing costs. Expect continued volatility in chip and AI infrastructure names.
- Bonds are regaining their hedging role: Falling yields despite strong data suggest Treasuries can once again offset equity drawdowns, restoring a key portfolio dynamic.
- Oil remains the wildcard: With Brent near $106, energy prices will shape both inflation and consumer spending, and by extension the Fed’s path.
- Earnings are the next catalyst: At current valuations, management guidance will be critical to justifying earnings outlooks and supporting stock prices.
