Broad Market Indices Decline Amid Sector Rotation
Stock markets experienced a downturn on Friday, driven by investor shifts away from technology and artificial intelligence (AI) related stocks, coupled with rising oil prices. The three major U.S. indices all posted losses. The S&P 500 Index dropped 1.09%, closing the session at 7,659.44. The Nasdaq Composite shed 2.14%, finishing at 26,140.03. Furthermore, the Dow Jones Industrial Average fell by 175.28 points, representing a 0.34% decrease, settling at 52,002.41.
These losses placed both the S&P 500 and the Nasdaq Composite below their respective 50-day moving averages. The selling pressure intensified throughout the day, causing the Cboe Volatility Index (VIX) to rise, reaching levels not seen in four months. Initially, the VIX climbed significantly, indicating elevated market fear.
Sector Weakness and AI Investment Concerns
Significant declines were observed in the chipmaking sector. The VanEck Semiconductor ETF (SMH) dropped 3%, led by negative performance from companies such as Micron Technology, Advanced Micro Devices, and Sandisk. This sector has struggled this week amidst anxieties regarding competition from China, and the SMH recorded a 10% week-to-date decline, marking its largest weekly drop since April 2025. This decline, combined with drops in other AI-linked stocks, contributed to the S&P 500 having a losing week. The benchmark index fell approximately 2% for the week, while the Nasdaq experienced a drop exceeding 4%, marking its worst week since June.
Investors have also expressed concern about the level of debt being taken on by technology corporations for AI development. Shares of “neoclouds,” such as CoreWeave, fell by nearly 12%, resulting in week-to-date losses of 25% for the stock.
“Obviously, increased debt issuance is something to observe and continue to watch and be concerned about if it continues to get to levels of excessiveness. But we’re not remotely close to that right now.”
Commodity Surges and Inflationary Pressures
Conversely, energy stocks saw gains on Friday, with companies like Chevron helping mitigate the losses in the Dow Jones. Oil prices increased due to heightened tensions between the United States and Iran, as well as between Russia and Ukraine. West Texas Intermediate (WTI) crude futures climbed 3.51%, settling at $101.41 per barrel, while the international benchmark, Brent crude futures, rose 3.72% to $109.86.
On the macroeconomic front, investors are navigating hotter-than-anticipated inflation data. This inflation concern has been worsened by elevated energy costs, particularly following the escalation of tensions between the U.S. and Iran. Wholesale inflation recorded its biggest gain since 2022, and consumer inflation remains above the Federal Reserve’s target of 2%.
Fed Policy and Investor Sentiment
Regarding monetary policy, Federal Reserve Chairman Kevin Warsh addressed an IMF event in Bangkok. Although he did not comment on whether the Fed would raise rates before the end of the year, market reaction suggested that central bank policy is expected to remain steady later this month. The CME Group’s FedWatch tool indicated an 82% probability that the Federal Reserve would keep its overnight rate unchanged at its meeting scheduled for October 27-28.
Meanwhile, analysts noted shifts in AI valuation spreads. A sell-off in neocloud stocks widened the valuation gap between AI leaders OpenAI and Anthropic. OpenAI’s valuation dropped more than 4% within the past 24 hours, according to perpetual futures pricing on the decentralized exchange Hyperliquid. In contrast, Anthropic’s perps rose 2.4% over the same period, indicating a valuation of slightly over $2 trillion.
Other Market Highlights
During the week, the S&P 500 saw a decline of about 2%, while the Nasdaq shed more than 4%. The Dow, however, managed a gain of 0.7% for the week.
In alternative market movements, the semiconductor sector remains volatile, with the SMH having posted its biggest weekly decline since April 2025. Separately, the bank Independent Bank saw its shares jump nearly 5% after reporting third-quarter earnings that surpassed expectations. Another move was seen in the energy sector, where U.S. crude oil prices surpassed the $100 mark, with WTI futures rising 2.9% to $100.78 per barrel, and Brent crude rising 3.3% to $109.37 per barrel.
