Wall Street Sinks as Tech Rout Deepens on AI Angst
Wall Street indexes fell sharply on Thursday, with tech heavyweight Nasdaq down 2%, as investors stepped up their sales of tech stocks and fled stocks amid concerns about artificial intelligence disruption.
The S&P 500 and Dow sank more than 1% as investors digested the latest jobs data and awaited the January inflation report, due on Friday.
After starting the day higher, indices began to sell off in morning trading as investors shunned riskier sectors and placed defensive bets such as utilities, consumer staples and real estate.
At a time when investors are stressed about the impact AI could have on competition, a lackluster quarterly update from Cisco Systems helped cloud the market in technology stocks broadly. Transportation companies were also caught up in concerns about AI disruption.
“The broader story in the market is which sectors and industries can increase productivity from AI investments, and on the other hand, which industries will be disrupted by AI,” said Jack Herr, chief investment analyst at GuideStone Funds.
“We see this as a ‘prove it’ year for AI. We need to start seeing some return on investment.”
The Dow Jones Industrial Average fell 669.42 points, or 1.34%, to 49,451.98, the S&P 500 shed 108.71 points, or 1.57%, to 6,832.76 and the Nasdaq Composite lost points 469.30,523,5,9,29,29,7,9,29,7,9,25,25,25,24.
Investors are waiting for the inflation report, analyzing the unemployment data
Wednesday’s stronger-than-expected jobs report fueled concerns the Federal Reserve may now be less likely to cut rates. These concerns were on the minds of investors as they looked ahead to the January Consumer Price Index report, due before the opening of the next session.
Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell below expectations last week, likely due to disruptions from winter storms.
“We’re in that middle of two important economic reports,” said Marc Dizard, chief investment officer at Huntington Wealth Management.
Cisco shares closed up 12.3% in their biggest one-day selloff since May 2022 after the communications equipment provider posted a quarterly adjusted gross margin below estimates.
Cisco was the fifth-biggest drag on the S&P 500, and Dizard said its selloff is likely to encourage investors to exit megacaps such as Apple, Nvidia, Broadcom and Amazon.com.
Earnings season has renewed investor concerns about big spending this year, with Amazon, Google, Meta and Microsoft collectively expected to spend nearly $650 billion in the race for AI dominance.
The S&P 500 software index fell 1.7% for its second straight loss, erasing most of the index’s decline from last week’s slump. Its biggest percentage decliner during the session was AppLovin, which fell 19.7% after it reported fourth-quarter results. Stocks in the marketing space have been under pressure this year due to intense competition.
The most economically sensitive Dow Jones Transport Average fell 4% with Landstar down 15.6%, CH Robinson down 14.5% and Expeditors International shed 13.2%.
CNBC previously reported that a new tool announced by AI company Algorhythm Holdings has made trucking companies the latest target of investor concerns about AI disruption. Algorhythm shares ended the session up nearly 30%.
“There was some weakness in the jobs report in terms of transportation employment,” said Scott Helfstein, chief investment strategist at Global X, referring to Wednesday’s jobs report. “Put that on top of potential disruptions from automation and the risks of weak demand.”
While the Philadelphia SE Semiconductor index has outperformed software stocks recently, it ended down 2.5% on Thursday.
Shares of Equinix surged 10.4% after its annual revenue forecast for data center users topped estimates on Wednesday, betting on strong demand linked to AI. It was the biggest gain for the S&P 500 real estate index.
Personal computer makers fell after China’s Lenovo warned of pressure on shipments due to memory-chip shortages, with shares weaker in HP, down 4.5% and Dell Technologies, down 9%.
Declining issues outnumbered advancing ones by a 2.17 to 1 ratio on the NYSE, where there were 748 new highs and 229 new lows.
On the Nasdaq, 1,305 stocks advanced and 3,581 declined as declining issues outnumbered advancers by a 2.74-to-1 ratio. The S&P 500 posted new 52-week highs and new 32-week highs.
On US exchanges, 22.45 billion shares changed hands compared to the 20.78 billion average from the previous 20 sessions.
(Reporting by Sinéad Carew, Twesha Dikshit and Purvi Agarwal in Bengaluru; Editing by Shilpi Majumdar, Pooja Desai, Rod Nickel)
